! 

LIBRARY 

OF  THE 

University  of  California. 

RECEIVED    BY    EXCHANGE 

Class 

tLi)t  Wi\\i\ittm^  of  €l)ifago 

POUNDED  BY  JOHN    D.  R(X:KEFELLER 


FEDERAL  REGULATION 
OF  RAILWAY  RATES 

SUBMITTED  TO  THE  FACULTY  OF  THE 

GRADUATE  SCHOOL  OF  ARTS 
AND  LITERATURE 

IN   CANDIDACY    FOU  THE  DEGREE  OF 

DOCTOR    OF    PHILOSOPHY 

jaDcpartmcnt  of  l^oUtical  €fonomp 

BY 

ALBERT  NEWTON  MERRITT 


\it\^V^ 


COPYRIGHT    1907   BY    HART,   SCHAFFNER   &  MARX 
ALL    RIGHTS   RKSERVBD 


PREFACE 

This  series  of  books  owes  its  existence  to  the  generosity 
of  Messrs.  Hart,  Schaffner,  and  Marx  of  Chicago,  who 
have  shown  a  special  interest  in  trying  to  draw  the  atten- 
tion of  American  youth  to  the  study  of  economic  and  com- 
mercial subjects,  and  to  encourage  the  best  thinking  of 
the  country  to  investigate  the  problems  which  vitally  affect 
the  business  world  of  to-day.  For  this  purpose  they  have 
delegated  to  the  undersigned  Committee  the  task  of  select- 
ing topics,  making  all  announcements,  and  awarding  prizes 
annually  for  those  who  wish  to  compete. 

In  the  year  ending  June  1,  1906,  the  following  topics 
were  assigned: 

1.  To  what  extent,  and  by  what  administrative  body, 
should  the  public  attempt  to  control  railway  rates  in 
interstate  commerce  ? 

2.  A  just  and  practicable  method  of  taxing  railway 
property. 

3.  Will  the  present  policy  of  the  labor  unions  in  dealing 
with  non-union  men,  and  the  "closed  shop,"  further  the 
interests  of  the  workingmcn  ? 

4.  Should  ship  subsidies  be  offered  by  the  government 
of  the  United  States  ? 

5.  An  examination  into  the  economic  causes  of  large 
fortunes  in  this  country. 

6.  The  influence  of  credit  on  the  level  of  prices. 

7.  The  cattle  industry  in  its  relation  to  the  ranchman, 
feeder,  packer,  railway,  and  consumer. 


oci86? 


vi  PREFACE 

8.  Should  the  government  seek  to  control  or  regulate 
the  use  of  mines  of  coal,  iron,  or  other  raw  materials,  whose 
supply  may  become  the  subject  of  monopoly  ? 

9.  What  provision  can  be  made  for  workingmen  to  avoid 
the  economic  insecurity  said  to  accompany  the  modern 
wage-system  ? 

A  First  Prize  of  One  Thousand  Dollars,  and  a  Second 
Prize  of  Five  Hundred  Dollars,  in  cash,  were  offered  for 
the  best  studies  presented  by  Class  A,  composed  exclusively 
of  all  persons  who  had  received  the  bachelor's  degree  from 
an  American  college  in  1894  or  thereafter. 

The  present  volume  was  awarded  the  first  prize. 

Professor  J.  Laurence  Laughlin, 

University  of  Chicago,  Chairman. 
Professor  J.  B.  Clark, 

Columbia  University. 
Professor  Henry  C.  Adams, 

University  of  Michigan. 
Horace  White,  Esq., 

New  York  City. 
Hon.  Carroll  D,  Wright, 

Clark  College. 


CONTENTS 
INTRODUCTION 

BASIS    FOR    THE    DEMAND    FOR    FEDERAL    REGULATION    OF 
RAILWAY   RATES 


Importance  of  the  railway  problem.  —  The  basis  of  the  present 
popular  agitation  for  public  regulation.  —  General  plan  and  scope 
of  the  present  work 


zi 


CHAPTER   I 

ARE   AMERIaA^f   RAILWAY   RATES   EXCESSIVE? 

General  complaint  of  excessive  charges.  —  Railway  rates  are  not 
high  in  proportion  to  the  cost  of  other  means  of  transportation. 
—  Comparison  of  American  and  foreign  rates.  —  Effect  of  differ- 
ent conditions  which  prevail  in  other  countries.  —  Reasons  why 
rates  should  be  lower  in  America.  —  Effect  of  lower  wages  and 
denser  traffic  in  Europe.  —  Decline  of  rates  in  America  compared 
with  the  decline  in  Europe.  —  The  advance  in  American  rates 
since  1899.  —  A  nominal  advance  compared  with  a  real  decline.  — 
The  increased  cost  of  operation.  —  It  is  essential  tliat  railway  capi- 
tal should  be  allowed  a  fair  return.  —  Capitalization  of  American 
railways.  —  The  returns  upon  the  actual  capital  invested  in  rail- 
ways have  been  moderate 1 


CHAPTER   n 

FEDERAL   CONTROL  OF   RATES   IS   NECESSARY 

The  chief  ground  of  complaint  against  the  railroads  is  that  rates  are 
une(iually  adjusted  l>etween  different  individuals  and  localities. 
—  The  great  majority  of  discriminations  U'tween  localities  are 
necessary  and  justifiable.  —  Equalization  of  rates  upon  a  mileage 
basis  is  impracticable.  —  Evils  of  setting  a  minimum  or  absolute 
rate.  —  Instances  of  unjustifiable  discrimination  between  locali- 
ties. —  Causes  which  may  produce  discrimination  between  com- 


lii  CONTENTS 

modities.  —  Conditions  upon  which  such  discrimination  is  justi- 
fiable. —  Discrimination  between  grain  and  grain  products. 
—  Other  cases  of  unjust  discrimination.  —  Extortionate  rates.  — 
No  exact  standard  for  determination.  —  Instances  of  excessive 
charges.  —  Competition  is  a  controlling  factor.  —  Some  forms  of 
competition  are  disappearing.  —  Federal  control  necessary  to  re- 
move evils  which  arise  in  connection  with  the  system  of  private 
car-lines,  industrial  roads,  and  private  terminal  facilities.  —  Federal 
regulation  and  direct  rebates 


CHAPTER   III 

OBJECTIONS   TO   RA.TE-FIXING   BY  A   COMMISSION 

General  scope  of  the  present  discussion.  —  Standard  for  determining 
reasonableness  of  rates.  —  Comparative  rates.  —  Relative  costs  of 
service.  —  Necessary  that  full  allowance  in  rates  should  be  made 
for  the  comparative  assignable  costs  of  service.  —  Allowance  must 
be  made  for  the  relative  possibilities  of  developing  a  large  traffic. 
—  Allowance  must  be  made  for  the  relative  forces  of  competition. 
Little  probability  that  the  present  Commission  would  give  full 
weight  to  these  various  factors.  —  Difficulty  of  remedying  local  dis- 
criminations where  the  points  in  question  are  served  by  different 
roads.  —  Necessity  of  allowing  a  fair  return.  —  Cases  where  such 
considerations  do  not  enter.  —  Difficulty  of  determining  the  actual 
capital  of  a  railroad.  —  Cost  of  reduplication  the  only  proper  stand- 
ard. —  What  constitutes  a  fair  return .?  —  Would  the  Commission 
allow  a  fair  retirrn  ?  —  State  commissions.  —  Relativity  of  rates 
complained  of.  —  Danger  of  rigidity  of  rates.  —  Exjierience  in 
Great  Britain.  —  Government  rate-fixing  destroys  the  incentive  to 
extraordinary  efficiency  of  management.  —  Integrity  of  the  action 
of  the  Commission  in  all  cases  is  not  assured.  —  Sectional  con- 
flicts and  political  influence 57 


CHAPTER   IV 

THE    INTERSTATE    COMMERCE    ACT    AND    ITS    INTERPRETA- 
TION  BY  THE   COMMISSION  AND   BY   THE   COURTS 

The  growth  of  Federal  authority  over  interstate  commerce.  —  Con- 
ditions which  prevailed  previous  to  the  act  of  1887.  —  Analysis 
of  the  Interstate  Commerce  Law.  —  The  long  and  the  short  haul 
clause.  —  The  San  Bernardino  Case.  —  The  Fargo  Sugar  Case. 
—  The  Cartage  Case.  —  The  Middlesboro  Case.  —  The  Social 
Circle  Case.  —  The  Alabama  Midland  Case.  —  The  Spokane  Falls 
Case.  —  The  Griffin  Case.  —  Georgia  Railroad  Commission 
Cases.  —  The  Chattanooga  Case.  —  The  St.  Cloud  Cases.  —  The 
Piedmont  Cases 90 


CONTENTS 


CHAPTER   V 


THE  INTERSTATE  COMMERCE  ACT  AND  ITS  INTERPRETA- 
TION BY  THE  COMMISSION  AND  BY  THE  COURTS  {con- 
cluded) 

Discriminations  between  localities.  —  The  Nashville  Coal  Case.  — 
The  Minneapolis  Case.  —  The  Savannah  Naval  Stores  Case.  — 
The  Danville  Case.  —  The  LaGrange  Case.  —  The  Kearney 
Case.  —  The  Hampton  Case.  —  The  Wilmington  Case.  —  Dis- 
criminations between  commodities.  —  The  Window  Shades  Case. 
—  The  Oil  Case.  —  The  Imjwrt  Rates  Case.  —  The  Hav  Case.  — 
Excessive  rates.  —  I'he  Delaware  Grange  Case.  —  The  Coxe 
Coal  Case.  —  The  Iron  Rates  Case.  —  The  Cattle  Raisers'  Associ- 
ation Case.  —  The  Freight  Burexiu  Cases.  —  The  Orange  Rate 
Case.  —  The  Truck  Farmers  Case.  —  Miscellaneous.  —  The 
Kentucky  and  Indiana  Bridge  Case.  —  The  Party  Rates  Case.  — 
The  Heard  Case.  —  The  Orange  Routing  Case 115 


CHAPTER   VI 

A  RATIONAL  PLAN  FOR  PUBLIC  CONTROL  OF  RATES 

The  control  of  rates  is  a  public  duty.  —  The  public  should  not  be 
denied  its  proper  share  of  the  benefits  accruing  from  improvements. 

—  The  present  plan  of  rate  control.  —  The  work  of  the  Commis- 
sion.—  Reasons  why  the  Commission  has  been  so  fre(|Uontly  over- 
ruled.— Attacks  upon  ihc  personnel  of  the  present  Commission. 

—  Its  inconsistent  functions.  —  Objections  to  the  present  system 
enumerated.  —  An  impracticable  |)Ian.  —  The  alternative  of  con- 
ferring rate-fL\ing  power  ujwn  the  Commission.  —  Constitutional 
objections.  —  The  rates  made  in  pursuance  of  the  exercise  of  this 
discretionarj'  power  would  not  be  subject  to  judicial  re\-iew,  except 
upon  constitutional  groimds.  —  The  proposed  amendment  to  the 
Hepburn  Bill  providing  for  judicial  review.  —  An  alternative  plan 
providing  for  a  special  court.  —  Such  a  court  could  not  exercise 
discretionary  powers.  —  It  would  have  the  power  to  determine  to 
what  extent  a  given  rate  is  unrea.sonablc,  and  it  could  enjoin  the 
enforcement  of  the  unreasonable  rate  for  the  future.  —  Objections 
answered 156 


APPENDIX 

THE   ACT  TO    REGUL^VTE    COMMERCE 213 


INTRODUCTION 

BASIS   FOR   THE   DEMAND    FOR   FEDERAL   REGULATION   OF 
RAILWAY   RATES 

No  question  is  exciting  more  animated  discussion  in  Amer- 
ica to-day  than  the  railroad  problem.  Indeed,  only  the 
utter  lack  of  unanimity  among  students  of  this  question, 
as  well  as  among  the  people  at  large,  together  with  the  new- 
ness and  importance  of  the  economic  and  social  issues 
involved,  justifies  the  publication  of  anything  further  upon 
a  subject  which  has  already  called  forth  a  number  of 
volumes,  and  has  been  for  several  years  a  leading 
topic  of  discussion  in  our  magazines  and  newspapers. 
Mainly  because  the  settlement  of  this  question,  one  way 
or  another,  so  vitally  affects  every  one's  personal  interests, 
it  has  made  slow  progress  toward  solution.  The  railroad 
problem  does  not  readily  lend  itself  to  unemotional  labora- 
tory methods.  Railway  rates  are  of  vital  importance  in 
every  sphere  of  business  activity.  As  one  factor  in  produc- 
tion, transportation  claims  no  inconsiderable  share  of  the 
proceeds  of  almost  every  commodity  offered  in  the  market. 
Comparative  railway  rates  may  be  the  factor  determining 
whether  great  cities  shall  flourish  or  decay,  and  frequently 
the  future  of  whole  sections  of  the  country  depends  upon 
slight  differentials  in  rates. 

Ordinarily,  where  such  tremendous  issues  are  at  stake, 
the  public  can  be  enlightened  only  through  bitter  experi- 
ence. Nevertheless,  it  is  to  be  hoped  that  there  is  a  growing 
disposition  at  the  |)resent  time  to  substitute  reason  for  pre- 
judice, and  logic  for  passion.  Certainly  it  is  a  legitimate 
function  of  the  impartial  investigator  to  strive  to  avert,  so 
far  as  possible,  the  disasters  which  are  so  frequently  in- 
volved in  hasty  and  unwise  political  or  social  experiments. 


xii  INTRODUCTION 

What  then  is  the  basis  of  the  demand  for  public  regula- 
tion of  railway  rates  ?  Complaints  against  the  existing  sys- 
tem of  railway  tariffs  are  many  and  varied,  some  being 
founded  upon  real  tangible  grievances,  while  others  are  the 
result  of  those  occasional  hardships  incidental  to  all  forms 
of  progress.  So  frequently  have  these  complaints  been 
reiterated,  during  the  past  two  years,  that  it  is  necessary 
to  mention  only  the  more  important  of  them. 

In  the  first  place,  it  is  alleged  that  railway  rates  in 
general  are  higher  than  they  ought  to  be.  Secondly,  it  is 
contended  that  rates  vary  unequally  between  different 
localities  and  classes  of  commodities,  certain  industries  and 
sections  of  the  country  being  placed  at  a  disadvantage  with 
respect  to  others,  at  the  discretion  of  irresponsible,  gain- 
seeking  railway  magnates.  Finally,  complaint  is  made 
that  railway  charges  vary  unequally  between  individuals, 
the  large  shipper  by  resort  to  various  devices  being  accorded 
special  advantages  over  the  small  shipper. 

We  shall  take  up  each  of  these  allegations  and  examine 
it  with  a  view  to  determining  whether  it  is  based  upon 
a  fair  ground  of  complaint,  or  upon  conditions  which  must 
be  characterized  as  legitimate.  In  each  case  we  shall  dis- 
cuss the  efficacy  of  closer  governmental  control  of  rates  as 
a  remedy  for  whatever  evils  are  found  to  exist.  Further, 
general  considerations  upon  the  subject  of  state  regula- 
tion will  be  introduced,  together  with  a  discussion  of  some 
new  problems  to  which  state  regulation  must  give  rise. 
This  discussion  is  followed  by  a  consideration  of  the  Inter- 
state Commerce  Law  and  of  its  interpretation  by  the  In- 
terstate Commerce  Commission,  and  by  the  courts;  finally 
a  plan  is  proposed  for  governmental  control,  which,  in  our 
judgment,  will  mean  an  interference  with  the  natural  eco- 
nomic order  only  so  far  as  such  interference  will  promote 
the  permanent  interests  of  the  country  as  a  whole. 


FEDERAL  REGULATION  OF  RAILWAY  RATES 


FEDERAL  REGULATION  OF 
RAILWAY  RATES 

CHAPTER   I 

ARE   AMERICAN   RAILWAY   RATES    EXCESSIVE? 

One  hears  so  much  about  railway  extortion  and  excessive 
charges,  that,  without  a  personal  investigation  of  the  sub- 
ject, one  might  readily  infer  rates  on  American  railroads 
to  be  much  higher  than  they  should  be,  and  government 
regulation  to  be  necessary  in  order  to  scale  down  the  exor- 
bitant profits  unjustly  taken  from  the  public  and  pocketed 
by  unscrupulous  railway  managers  and  owners.  Alleged 
extortion  is  one  of  the  most  serious  complaints  against  the 
railroads.  Yet  when  we  come  to  examine  the  individual 
cases  of  those  who  complain  most  of  excessive  charges, 
we  shall  in  nearly  every  case  find  that  the  real  cause  of 
complaint  is  not  that  rates  in  general  are  too  high,  but 
that  the  individual  in  question  is  compelled  to  pay  a  rate 
higher  than  he  thinks  fair  in  proportion  to  rates  paid  by 
some  other  individual,  either  of  the  same  or  of  another 
locality.  Since  these  latter  points  will  be  fully  discussed 
in  the  second  chapter,  we  shall  for  the  present  confine 
ourselves  to  a  consideration  of  the  argument  that  rates  in 
general  are  excessive. 

In  order  that  we  may  come  to  a  correct  conclusion  in 
regard  to  this  matter,  it  is  necessary  that  we  seek  some 
standard  of  comparison  which  will  enable  us  to  judge  of 
the  reasonableness  of  present  rates  upon  American  rail- 
roads. 

It  is  to  be  noted  at  the  outset  that  not  even  the  severest 
critics  of  the  railroads  maintain  that  railway  rates  are  high 


2       FEDERAL  REGULATION  OF  RAILWAY  RATES 

in  proportion  to  the  cost  of  other  means  of  transportation. 
On  the  contrary,  owing  to  their  lower  charges,  rail- 
ways have  practically  superseded  all  other  forms  of 
inland  transportation;  even  such  natural  highways  of 
commerce  as  rivers  and  lakes  have  shown  themselves 
scarcely  able  in  competition  to  retain  a  small  portion  of 
traffic. 

Nor  are  American  rates  high  in  proportion  to  rates 
paid  in  foreign  countries.  With  the  possible  exception  of 
India,  rates  on  American  railroads  are  the  lowest  in  the 
world.  This  will  appear  from  the  comparative  rates  paid 
in  several  countries  given  in  the  following  table  for  the 
year  1902: 


Germany, 
Austria, 

average 

rate 

per 

ton 

mile  1.42  cents 
1.16 

France, 

1.55 

Himgary, 
Italy, 
United  States, 

1.30 
1.58 
.757 

In  England  the  only  road  publishing  intelligible  statistics 
is  the  London  and  Northeastern,  which  reports  an  aver- 
age revenue  of  1.93  cents  per  ton-mile  on  minerals,  2.94 
cents  per  ton-mile  on  live  stock,  and  an  average  of  2.32 
cents  on  all  other  kinds  of  traffic. 

These  statistics  show  average  rates  on  most  European 
railways  to  be  more  than  double  those  which  prevail  in 
America. 

It  may  be  objected  that  conditions  from  country  to 
country  differ  so  as  to  make  comparative  rates  of  little 
significance.  There  is  some  ground  for  this  objection.  The 
points  of  difference  are  indeed  so  varied  that  it  is  prac- 
tically impossible  to  take  all  of  them  into  consideration. 
Nevertheless,  on  analysis  it  will  be  found  that  in  import- 
ant respects  they  tend  to  offset  one  another.  Therefore, 
they  are  in  error  who  dismiss  arguments  based  on  com- 
parison of  American  with  foreign  rates  by  citing  the  fact 
that  traffic  conditions  are  in  some  respects  altogether  dif- 


ARE  AMERICAN  RAILWAY  RATES  EXCESSRTE?      3 

ferent.  The  proper  method  must  be  to  inquire  into  these 
differences,  and  to  assign  to  each,  as  nearly  as  possible, 
its  f)roper  weight.  After  this  has  been  done  the  resultant 
will  furnish  a  basis  for  comparison,  which,  though  neces- 
sarily inaccurate,  will  nevertheless  be  significant,  espe- 
cially if  the  discrepancy  of  rates  shall  prove  to  be  so  glaring 
that  it  cannot  be  accounted  for  as  due  to  inaccurate  methods 
used  in  determining  the  basis  for  comparison.  It  is,  there- 
fore, in  order  to  take  up  the  more  important  differences  in 
traffic  conditions  prevailing  in  Europe  and  America  respect- 
ively, to  determine  whether  there  are  not  neutralizing  ele- 
ments of  advantage  or  disadvantage. 

By  far  the  most  important  factor  tending  to  produce 
lower  rates  in  America  is  the  longer  haul.  The  average 
distance  which  a  ton  of  freight  is  carried  in  America  is 
nearly  four  times  the  average  haul  in  England,  and  nearly 
double  that  of  France  and  Germany.  Naturally  enough, 
the  rate  per  ton-mile  is  less  on  freight  that  is  carried  from 
150  to  200  miles  than  on  that  which  is  hauled  50  miles  or 
less. 

Another  consideration  of  great  weight  is  the  lower  cost 
of  service  in  America,  due  to  the  remarkable  ingenuity  of 
Americans  in  discovering  the  easiest  and  least  expensive 
way  of  performing  a  given  amount  of  work.  Thus  in  Amer- 
ica we  find  freight-cars  and  engines  more  than  double  the 
capacity  of  those  used  in  Europe.  Trainloads  of  from 
2000  to  2500  tons  arc  therefore  quite  common  in  America, 
while  in  Europe  trainloads  rarely  exceed  600  or  800  tons. 

Again,  European  railways,  on  the  whole,  carry  a  some- 
what higher  grade  of  traflfic  than  do  American  railways. 
And  yet,  when  comparison  is  made  of  rates  on  similar 
grades  of  traffic,  American  rates  are  found  to  be  as  much 
lower  than  foreign  rates  as  the  general  averages  would 
indicate.  Only  upon  short-distance,  non-competitive 
traffic  do  American  rates  at  all  ai>proximate  European 
rates. 


4       FEDERAL  REGULATION  OF  RAILWAY  RATES 

Some  European  railways,  it  is  true,  furnish  free  de- 
livery to  the  door  of  the  consignee,  but,  as  a  rule,  this  ap- 
plies only  to  a  small  portion  of  the  higher  grade  traffic, 
while  such  articles  as  grain,  hay,  live  stock,  coal,  and  other 
minerals,  which  form  the  bulk  of  the  traffic,  are  delivered 
only  on  track,  as  in  this  country. 

These  important  considerations  are,  however,  offset  by 
others  of  almost  equal  weight,  tending  to  produce  lower 
rates  in  Europe. 

First  may  be  mentioned  the  fact  that  a  much  lower 
level  of  wages  and  prices  prevails  in  Europe.^  Thus  in  spite 
of  our  better  machinery  the  cost  of  production  of  many 
commodities  is  so  much  lower  in  Europe  that  European 
manufacturers,  handicapped  as  they  are  by  a  tariff  wall 
ranging  from  20  to  100  per  cent,  have  found  themselves 
able  to  compete  in  supplying  our  home  market  with 
many  commodities  which  we  ourselves  produce  at  greater 
cost.  If,  then,  Europeans  are  able  to  produce  other  com- 
modities cheaper  than  we,  why  should  they  not  also  be  able 
to  furnish  transportation  at  a  lower  cost  ?  Not  only  do  the 
lower  wages  prevailing  in  Europe  tend  to  reduce  the  cost 
of  operation  and  of  maintenance,  but  they  have  been  a 
most  important  factor  in  diminishing  the  initial  expense  of 
building  the  railroads.  Many  American  railroads  were  in 
the  beginning  laid  out  through  an  almost  unbroken  wilder- 
ness, where,  though  there  was  practically  no  expense  in 

'  The  following  is  a  comparison  of  the  wages  paid  to  certain  forms  of 
railway  labor: 

Trackmen   Engineers   Firemen  Conductors  Trainmen 
The  United 

Kuigdom     $.73  per  day    $1.62  $  .91  $1.22  $  .85 

Belgium  .48  1.01  .72  1.08  .72 

Germany  .57 

France  .52 

Italy  .42 

Russia  .29 

United 

States  1.31  4.01  2.28  3.38  2.17 

(See  Bulletin  of  the  Department  of  Labor,  No.  20.) 


ARE  AMERICAN  RAILWAY  RATES  EXCESSIVE?    5 

obtaining  a  right  of  way,  the  cost  of  transporting  materials 
and  of  carrying  on  the  work  was  enormous. 

Another  consideration  of  great  weight  is  the  greater 
density  of  traffic  which  prevails  on  most  European  railways. 
It  is  a  commonplace  in  railway  economics  that,  wherever 
the  traffic  is  dense,  goods  may  be  carried  at  a  rate  much 
lower  than  it  is  possible  to  make  where  the  traffic  is  light. 
In  fact,  where  roads  are  already  provided  with  a  full 
equipment,  the  additional  expense  of  handling  additional 
units  of  traffic  may  be  comparatively  trivial.  The  follow- 
ing table  gives  density  of  traffic  upon  European  and  Ameri- 
can railways  for  the  year  1902: 

United  States,  tonnage  per  mile  of  line,  793.351  ' 
France,  600,300  * 

Germany,  1,090.600 » 

England,  1.150.000  ♦ 

Thus  it  appears  that  the  conditions  which  tend  to  pro- 
duce low  rates  in  America  are  offset  by  circumstances  of 
almost  equal  weight  which  should  tend  to  produce  low 
rates  in  Europe.  It  would  seem,  therefore,  that  so  far  as  the 
more  important  economic  and  physical  conditions  are  con- 
cerned, rates  in  Europe  should  be  nearly  as  low  as  those 
which  prevail  in  America.  The  vast  discrepancy  which 
does  in  fact  exist  must,  therefore,  be  assigned  to  other 
causes,  and  among  those  causes  the  most  potent  are,  with- 
out doubt,  the  comparative  lack  of  competition  and  the 
stifling  of  private  initiative  in  European  communities 
through  governmental  interference. 

If.  however,  our  average  rates  are  low  in  comparison 
with  average  rates  in  other  countries,  is  there  not  some  other 
standard  by  which  they  may  be  adjudged  to  be  too 
high  ?  Are  not  rates  on  American  railways,  it  may  be 
asked,  higher  to-day  than  they  have  been   in  the  past? 

*  Report  of  the  Interstate  Commerce  Commisnon  for  1903,  p.  112. 
'  Archive  fur  Eiaenbahnwesen,  1905. 

»  Ibid. 

*  Estimate. 


6       FEDERAL  REGULATION  OF  RAILWAY  RATES 

And  this  question  brings  one  to  a  consideration  of  the 
most  plausible  and  effective  charge  against  American  rail- 
roads. There  has  been  in  fact  a  considerable  advance 
in  rates  within  the  last  few  years,  and  if  it  can  be  shown 
that  rates  have  been  arbitrarily  and  unreasonably  ad- 
vanced during  this  period,  a  most  effective  point  will 
have  been  scored  against  our  present  rate-making  system. 
A  comparison  of  present  rates  with  those  which  have 
prevailed  in  the  past  is  necessary  to  determine  whether 
present  rates  may  be  justified  upon  reasonable  grounds. 

No  one  contends  that  rates  are  high  to-day  in  compari- 
son with  rates  of  fifteen  or  twenty  years  ago.  In  fact,  when 
long-time  periods  are  taken  into  account,  it  is  found  that 
there  has  been  a  remarkable  decline  in  American  rates,  — 
a  decline  such  as  has  been  witnessed  in  no  other  country. 
The  following  table  shows  the  general  course  of  rates  in 
the  United  States  for  the  past  thirty-five  years : 

Year.  Average  rate  per  ton-mile.  Year.     Average  rate  per  ton-mile. 

1870  1.99  cents.  1899  .724  cents. 

1882  1.24  1900  .729 

1887  1.03  1901  .750 

1892  .896  1902  .757 

1897  .798  1903  .763 

1898  .753  1904  .780 

The  decline  in  the  average  rate  per  ton-mile  in  thirty-five 
years  has  been  1.21  cents,  or  nearly  60.5  per  cent.  The 
increase  from  the  lowest  point  in  1899  to  the  highest  point 
attained  since  that  time  in  1904  has  been  .056  cent  per  ton- 
mile,  while  the  percentage  increase  has  been  but  7.7.* 

The  general  course  of  rates  has,  therefore,  been  rapidly 
downward  in  the  United  States.  In  European  countries 
generally,  on  the  other  hand,  where  government  inter- 
ference has  been  more  minute,  the  decline  of  rates  has 

*  In  1905  the  average  rate  per  ton-mile  was  only  7.66  mills,  represent- 
ing a  decline  of  2.05  per  cent  as  compared  with  the  rate  of  1904,  and  an 
advance  of  only  5.8  per  cent  over  those  of  1899.  The  passenger  rate  for 
the  year  1905  was  only  1.962  cents  per  mile,  which  is  the  lowest  average 
rate  yet  attained  in  the  history  of  this  country. 


ARE  AMERICAN  RAILWAY  RATES  EXCESSIVE?    7 

been  during  this  period  comparatively  insignificant.  In 
France,  where  every  rate  made  by  the  railroads  must  be 
approved  by  a  government  commission  and  by  the  Sec- 
retary of  the  Interior  before  it  can  be  enforced,  there  has 
been  ])ractically  no  decline  during  the  period  in  which  the 
decline  in  America  has  been  rapid.  In  1870  the  average 
rate  in  France  was  1.625  cents  per  ton-mile.  In  1903  it 
had  fallen  to  1.55  cents,  an  absolute  decline  of  only  .075 
cent  as  against  a  decline  in  America  during  the  same  period 
of  1.22  cents,  while  the  percentage  decline  in  France  has 
been  but  4.3  per  cent  as  against  60.5  per  cent  in  the  United 
States.  In  fact,  the  opinion  of  all  experts  is  unanimous 
that  to  whatever  cause  it  may  be  due,  the  decline  in  Ameri- 
can rates  has  been  nothing  short  of  phenomenal. 

It  must  be  admitted,  nevertheless,  that  there  has  been 
a  considerable  advance  in  American  rates  since  1899,  when 
the  lowest  point  was  reached.  Is  not  this  advance  easily 
accounted  for,  however,  when  one  takes  into  consideration 
the  prosperity  which  the  country  has  enjoyed  since  that 
time.''  Railway  stockholders,  and  many  bondholders  as 
well,  were  heavy  losers  during  the  period  of  depression 
which  preceded  1899,  and  should  railway  capital  be 
denied  the  privilege  of  recuperation,  which  all  other  forms 
of  capitalistic  enterprises  enjoy  during  periods  of  prosper- 
ity? 

However,  it  is  not  the  slight  advance  of  rates  but  the 
increased  amount  of  business  which  has  made  the  rail- 
ways, within  the  last  few  years,  comparatively  prosperous. 
At  the  same  time,  coupled  with  the  general  prosperity 
which  has  attended  the  increased  amount  of  business  done 
has  come  a  considerable  rise  in  the  prices  of  nearly  all 
commodities,  while  there  has  occurred  also  a  considerable 
advance  in  the  rate  of  wages.  For  these  reasons  the  cost 
of  operation  upon  our  railroads  has  been  greatly  increased. 

Whatever  the  cause,  the  fact  of  this  rise  in  the  price  of 
services  and  commodities  is  incontestable.  In  other  words. 


8        FEDERAL  REGULATION  OF  RAILWAY  RATES 

a  smaller  quantity  of  labor  and  materials  can  be  purchased 
with  a  given  amount  of  gold  coin  to-day  than  could  be 
purchased  six  years  ago.  To  prove  this  fact  we  have  but 
to  glance  at  the  three  best  tables  of  American  prices.  In 
each  table  the  percentage  basis  is  the  average  of  the  same 
table  for  the  ten-year  period  1890  to  1900,  and  for  com- 
parison we  have  averaged  the  index  numbers  for  the  five- 
year  period  1895  to  1899. 

The  tables  of  the  United  States  Bureau  of  Labor  em- 
brace 260  important  commodities,  of  which  the  average 
wholesale  prices  for  the  year  are  computed  on  the  basis  of 
the  average  quotations  upon  the  first  day  of  each  month. 
According  to  this  table  the  average  of  the  index  num- 
bers for  the  five-year  period  1895  to  1899  is  93.6,  while  for 
the  year  1905  the  index  number  is  115,  showing  an  advance 
of  24  per  cent. 

Bradstreet's  tables  embrace  100  articles  of  common  con- 
sumption. Using  the  same  method  of  computation,  the 
average,  according  to  his  tables,  is  93.72  for  the  period 
1895  to  1899,  and  the  index  number  for  the  year  1905  is 
119.6,  showing  an  advance  of  28  per  cent. 

The  tables  computed  by  Dun  apply  only  to  the  neces- 
saries of  life.  According  to  these  tables  the  average  for 
the  period  1895  to  1899  is  93.08,  while  the  index  number 
for  the  year  1905  is  116.6,  showing  an  advance  of  25.2  per 
cent. 

These  various  tables,  compiled  independently,  apply  to 
the  prices  of  different  sets  of  commodities.  It  is  remarkable 
that  their  results  should  be  so  substantially  similar.  This 
evidence  establishes  beyond  any  reasonable  doubt  the  fact 
of  a  considerable  advance  of  prices.  But  a  general  ad- 
vance in  the  prices  of  commodities,  according  to  another 
way  of  stating  the  same  fact,  is  only  a  relative  decline  in 
the  value  of  that  standard  in  which  prices  are  measured. 
When  measured  in  the  amount  of  commodities  and  services 
which  it  will  buy,  gold  has  therefore  declined  about  25  per 


ARE  AMERICAN  RAILWAY  RATES  EXCESSIVE?    9 

cent  in  value  since  the  period  1895-1899.  Would  it  then 
be  unreasonable  to  expect  that  gold,  being  less  valuable 
for  the  purchase  of  commodities  and  labor,  should  also  be 
less  valuable  in  the  purchase  of  transportation  ?  What  are 
the  facts  ?  If  we  take  similar  |)eriods  for  the  computation 
of  average  railway  rates,  we  find  that  there  has  been  no 
advance  whatever,  the  average  rate  for  the  first  period, 
1895-1899,  being  7.84  mills  per  ton-mile,  while  that  of 
1904  was  only  7.80  mills  per  ton-mile.  Thus  while  aver- 
age prices  have  advanced  25  per  cent,  there  has  actually 
been  a  slight  decline  in  average  railway  rates. 

It  will  be  noted  that  we  use  the  average  rate  for  1904 
instead  of  that  for  1905,  as  in  the  case  of  prices.  This 
would  by  no  means  be  a  fair  basis  for  comparison  were 
it  not  for  the  fact  that  the  indications  are  that  the 
average  rate  for  1905  when  published  will  be  found  to 
be  much  lower  than  that  for  1904.  The  past  year  has 
been  marked  by  many  severe  rate-wars,  by  drastic  re- 
ductions on  the  part  of  State  Commissions,  and  by  com- 
paratively few  advances.' 

An  important  distinction  is  here  to  be  indicated  which  is 
not  often  recognized.  There  are  two  sorts  of  rates,  which 
may  be  designated  respectively  as  nominal  and  real. 
Nominal  rates  are  measured  in  money,  while  real  rates 
consist  of  a  percentage  of  the  value  of  the  commodities 
transported.  To  determine  the  real  rate,  that  proportion 
of  the  value  of  the  goods  transported,  which  must  be  given 
for  the  service  of  transportation,  must  be  ascertained. 

This   distinction   may   at   first   seem   useless,   and   the 

method  of  computing  real  rates  certainly  refuses  to  lend 

itself  to  exact  statistical  analysis.   Nevertheless,  real  rates, 

'  Tlie  alxjve  forecast  has  proved  correct.  Accordinfj  to  the  Statistics  of 
Railways  pubHslied  In-  the  Interstate  Commerce  rommission,  the  average 
rate  per  tnn-milo  for  1905  was  only  .766  cent.  The  indications  now  are 
that  the  report  for  1906  will  sliow  still  further  reductions,  thus  practi- 
cally wiping  out  the  advance  which  ha.s  occurred  since  1899.  On  the 
other  hand,  prices  have  been  rapidly  advancing,  to  the  extent  that  the 
tables  for  1906  show  an  advance  of  nearly  five  per  cent  over  those  of  1905. 


10    FEDERAL  REGULATION   OF  RAILWAY  RATES 


such  as  described,  are  the  only  proper  measure  of  the 
relative  burden  of  transportation  charges  upon  the  indus- 
tries of  our  country.  Obviously  it  is  of  little  concern  to  the 
producer  just  what  may  be  his  absolute  money  income  and 
expenditure.  That  which  is  of  especial  interest  to  him  is 
his  relative  income  and  his  outlay.  It  is,  therefore,  the 
proportion  of  the  value  of  his  wheat  which  must  be  paid 
for  its  transportation  that  determines  the  real  burden  of 
the  transportation  charge  upon  him.  On  the  other  hand, 
it  is  the  amount  of  labor  and  of  materials  which  the  money 
received  for  transportation  will  buy  which  is  of  interest 
to  the  railroad  in  determining  whether  or  not  it  can  derive 
a  profit  from  the  rates  charged.  If  now  real  rates  are 
accepted  as  the  proper  basis  for  determining  the  course  of 
rates  in  this  country  the  whole  situation  assumes  an  entirely 
different  aspect.  The  tables  given  above  show  that  the 
proportion  of  goods  of  all  kinds  which  had  to  be  given 
for  their  transportation  in  1905  was  about  25  per  cent 
less  than  during  the  period  1895  to  1899.  In  other 
words,  real  rates  have  declined  25  per  cent  in  less  than 
ten  years. 

This  fact  may  be  verified  by  a  comparison  of  rates  and 
prices  upon  almost  any  important  commodities.  The  fol- 
lowing table  shows  the  decline  in  the  rates  on  grain :  ^ 

Average  rate  per  bu. 
Chicago  to  New  York 
Corn  Export  rates 

per  bu.  !By  lake  and  rail  All  rail 

$.253    "       $.0695  $.1217 

.249  .0732  .120 

.263  .0737  .1232 

.287  .0496  .1155 

.303  .0663  .1113 


Average  prices. 

Year 

Wheat 

Oats 

per  bu. 

per  bu. 

1895 

$.509 

$.199 

1896 

.726 

.215 

1897 

.808 

.187 

1898 

.582 

.255 

1899 

.584 

.212 

Average 

.640 

.219 

.271 

.0664 

.1183 

1900 

619 

.258 

.357 

.0505 

.0908 

1901 

.624 

.379 

.605 

.0557 

.0902 

1902 

.630 

.307 

.403 

.0578 

.0875 

1903 

.695 

.341 

.425 

.0617 

.0889 

1904 

.924 

.313 

.441 

.0502 

.0847 

Average 


.699  .329  .446  .0552 

United  States  Statistical  Abstract,  1904. 


ARE  AMERICAN  RAILWAY  RATES  EXCESSIVE?    11 

Thus  during  the  first  period,  1895  to  1899,  one  bushel  of 
wheat  would  purchase  the  transportation  of  5.4  bushels, 
while  during  the  period  1899  to  1904,  one  bushel  of  wheat 
would  purchase  the  transportation  of  7.9  bushels.  One 
bushel  of  oats  would  purchase  the  transportation  of  1.9 
and  3.7  bushels  in  the  two  periods  resj)ectively,  while  one 
bushel  of  corn  would  purchase  the  transportation  of  only 
2.3  bushels  in  the  first  period,  but  more  than  5  bushels  in 
the  second.  Even  more  striking  results  may  be  obtained 
if  we  take  the  through  export  rates  from  St.  Louis,  Kan- 
sas City,  or  Duluth.  Thus  we  find  that  there  has  been  a 
decline  of  from  32  per  cent  to  51  per  cent  in  the  real  rates 
on  grain.  As  wc  shall  see  presently,  there  has  been  a  simi- 
lar decline  from  the  railroad  point  of  view,  since  the  money 
which  is  received  for  transportation  will  buy  less  labor 
and  materials  than  it  would  five  or  ten  years  ago. 

Even  if  we  take  the  rate  for  the  year  1899  as  a  basis  for 
comparison,  instead  of  the  averages  for  the  two  five-year 
periods,  we  still  have  a  decline  of  more  than  17  per  cent 
in  the  real  rates  since  that  year.  The  use  of  the  year  1899 
as  a  basis  for  comparison  is,  however,  manifestly  unfair. 
During  that  year  the  railway  revenue  per  ton-mile  was  the 
lowest  in  the  history  of  this  country.  Furthermore,  the 
year  1899  was  marked  by  more  disastrous  rate-wars  than 
any  other  |>criod  since  the  eighties.  It  was  in  order  to  pro- 
tect themselves  from  these  rate-wars  that  the  railroads 
made  such  rapid  progress  toward  consolidation  during 
the  two  succeeding  years.  Then,  too,  the  years  1898  and 
1899  were  marked  by  more  secret  rebates  and  dej)artures 
from  the  published  rates  than  any  period  since  1887. 
This  point  is  substantiated  by  the  following  quotation 
from  the  Report  of  the  Interstate  Commerce  Commission 
for  1898,  which  was  reprinted  in  the  Report  for  1899: 

Tariffs  are  disregarded,  discriminations  constantly  occur,  the 
price  at  which  transportation  can  be  obtained  is  fluctuating  and 
uncertain.   Railroad  managers  are  distrustful  of  each  other,  and 


12    FEDERAL  REGULATION   OF  RAILWAY  RATES 

shippers  are  all  the  while  in  doubt  as  to  the  rates  secured  by 
their  competitors.  .  .  .  Enormous  sums  are  spent  in  purchasing 
business,  and  secret  rates  are  accorded  far  below  the  published 
charges.  The  general  public  gets  little  benefit  from  these  reduc- 
tions, for  concessions  are  confined  mainly  to  the  heavier  shippers. 

The  only  comment  necessary  upon  the  foregoing  state- 
ment is  that  every  such  secret  reduction  tended  to  reduce 
the  average  revenue  per  ton-mile,  which  is  necessarily  com- 
puted upon  the  basis  of  the  rates  actually  charged  rather 
than  upon  what  would  have  been  collected  if  the  pub- 
lished tariffs  had  been  enforced  upon  the  entire  amount  of 
traffic.  Since  the  passage  of  the  Elkins  Law%  however, 
these  secret  rebates  have  rapidly  diminished.  With  the 
quotation  cited  above,  compare  the  following  from  the 
Report  of  the  Commission  for  1904: 

Without  further  reference  to  the  changes  effected  by  this 
amendatory  legislation  [the  Elkins  Law],  the  Commission  feels 
warranted  in  saying  that  its  beneficial  bearing  became  evident 
from  the  time  of  its  passage.  It  has  proved  a  wise  and  salutary 
enactment.  It  has  corrected  serious  defects  in  the  original  law, 
and  greatly  aided  the  attainment  of  some  of  the  purposes  for 
which  that  law  was  enacted.  No  one  familiar  with  railway 
conditions  can  expect  that  rate-cutting  and  other  secret  devices 
will  immediately  and  wholly  disappear,  but  there  is  a  basis  for 
confident  belief  that  such  offenses  are  no  longer  characteristic 
of  railway  operations.  That  they  have  greatly  diminished  is  be- 
yond doubt,  and  their  recurrence  to  the  extent  formerly  known 
is  altogether  unlikely.  Indeed,  it  is  believed  that  never  before  in 
the  railroad  history  of  this  country  have  tariff  rates  been  so  well 
or  so  generally  observed  as  they  are  at  the  present  time.^ 

If  it  is  true  that  the  practice  of  giving  secret  rebates  is 
becoming  much  less  common,  we  are  brought  to  the  con- 
clusion that  the  advance  in  nominal  rates,  since  the  year 
1899,  may  largely  be  accounted  for  by  the  withdrawal  of 
the  large  number  of  secret  concessions  from  the  published 

'  This  broad  statement  has  been  somewhat  modified  by  more  recent 
Reports  of  the  Commission. 


ABE  AMERICAN  RAILWAY  RATES  EXCESSIVE?     13 

rates  which  has  taken  place  since  that  time.  In  other  words, 
the  advance  of  rates  has  been  an  advance  in  the  special 
rates  obtained  by  large  shippers  rather  than  an  advance 
in  the  published  rates.  The  enforcement  of  the  published 
tariffs  has  tended  to  increase  the  average  receipts  j)er  ton- 
mile  without  a  corresponding  increase  in  the  published 
rates.  The  advance  in  the  published  rates  has  therefore 
been  much  less  than  the  average  rates  per  ton-mile  would 
seem  to  indicate. 

The  following  statistics  show  the  decline  in  the  real 
rates  which  has  taken  place  from  the  standpoint  of  income 
and  expenditure  to  the  railways:  The  increase  of  gross 
receipts  of  railways  for  the  year  1902-1903,  which  was 
due  to  the  increase  of  rates  since  1899,  was  $07,550,299. 
The  increase  in  the  cost  of  labor,  due  to  the  advance  in 
the  rate  of  wages,  was  $40,373,501,  while  the  increase  in  the 
cost  of  fuel,  due  to  an  advance  in  its  price,  was  over 
$41,000,000.  Thus  the  increase  in  the  cost  of  these  two 
items  alone  was  20  per  cent  greater  than  the  additional 
revenue  derived  from  the  advance  in  the  nominal  rates. 

Following  is  a  table  of  the  average  prices  of  the  two 
principal  materials  used  by  the  railroads:  ^ 

Year  Steel  rails,  per  ton  CJoal,  per  ton 

1895  $34.33  $4.00 

1896  28.00  2.2.5 

1897  18.75  1.80 

1898  17.02  1.60 

1899  28.12  2.00 


Average 

23.30 

1.93 

1900 

32.29 

2.50 

1901 

27.33 

2.50 

1902 

28.00 

2.50 

1903 

28.00 

3.75 

1904 

28.00 

2.25 

Average 

28.72 

2.70 

One  dollar  received  by  the  railroads  for  transportation 
during  the  first  period,  1895  to  1899,  would,  it  appears, 

>  United  States  Siaiustical  Abstract,  19W. 


14    FEDERAL  REGULATION   OF  RAILWAY  RATES 

buy  about  24  per  cent  more  steel  rails  and  40  per  cent 
more  coal  than  in  the  five-year  period  since  1899.  The 
following  table  gives  the  prices  of  some  other  materials 
which  enter  into  the  expenses  of  railway  operation  : 


1899 

1903 

Increase 

Railway  ties,  each 
Track  bolts,  per  cwt. 

$ 

.43 

$ 

.54 

24.% 

1.80 

2.75 

52.7 

Wire,  barbed,  "      " 

2.25 

3.05 

35.5 

Bar  iron,  per  ton 

22.00 

36.00 

63.6 

Cast  iron  pipe,  per  ton 

15.40 

32.00 

107.00 

Lumber,  per  1000  ft. 
Car  wheels,  each 

18.50 

23.25 

25.6 

5.85 

8.60 

47.00 

Locomotives,  each 

9000. 00 

15000.00 

66.6 

Labor,  trackmen  per 

day 

1.18 

1.31 

12.9 

From  the  above  table  it  will  be  seen  that  the  advance  in 
the  prices  of  many  of  the  principal  railway  materials  has 
been  even  greater  than  the  advance  in  average  prices  of 
other  commodities.  From  the  railway  point  of  view,  there- 
fore, the  decline  in  real  rates  has  been  even  greater  than 
from  the  standpoint  of  the  general  public. 

One  other  point  remains  to  be  considered  under  this 
head.  There  are  those  who  would  readily  admit  all  the 
preceding  arguments,  who,  nevertheless,  would  insist  that 
rates  have  not  declined  as  rapidly  as  they  should.  They 
urge  that  the  many  improvements  which  have  been  adopted 
since  1899,  the  increase  in  the  trainload,  and  the  enormous 
increase  of  the  traffic,  have  enabled  the  railroads  to  reduce 
expenses  of  operation  out  of  all  proportion  to  the  decline 
in  rates.  They  insist  that  the  public  has  been  deprived  of 
its  fair  share  in  the  advantages  accruing  from  the  growth 
of  business,  and  from  the  introduction  of  many  modern 
labor-saving  improvements. 

That  there  have  been  many  such  improvements  adopted, 
that  the  total  amount  of  traffic  has  been  greatly  increased, 
and  that  the  public  is  entitled  to  a  portion  of  the  advant- 
ages which  accrue  from  these  changes  may  be  admitted. 
But  is  it  true  that  these  ameliorations  have  been  suflBcient 
to  offset  the  advance  in  prices  of  materials  and  labor  so 


ARE  AMERICAN  RAILWAY  RATES  EXCESSIVE?    15 

that  there  has  actually  been  a  decline  in  the  relative  ex- 
penses of  operation  durin<j;  the  last  few  years  ?  On  the 
contrary,  statistics  show  that  operating  expenses  have  been 
increasing  much  more  rapidly  than  net  income. 

In  1899  the  proportion  of  operating  expenses  to  gross 
income  from  operation  was  65.24  per  cent,  while  in  1904 
it  was  07.79  per  cent.  At  the  same  time  the  proportion  of 
net  income  from  operation  to  gross  income  fell  from  34.76 
per  cent  to  32.21  per  cent.* 

If  we  let  A  and  A'  represent  the  proportion  to  gross 
income  of  operating  expenses  for  the  years  1899  and  1904 
respectively,  and  B  and  B'  the  proportion  of  net  income 
to  gross  income  for  the  same  years,  we  have:  b  •  u''  •• 
1.875  :  2.146.  Thus  in  the  relation  of  the  two  items 
operating  expenses  have  gained  about  14  per  cent  on  the 
net  income. 

In  1899  the  average  cost  of  running  one  train  one  mile 
was  $.98,  while  in  1904  it  had  risen  to  $1.31,  showing  an 
increase  of  33.7  per  cent.-  In  1899  the  gross  receipts  per 
train-mile  were  $1.50,  while  in  1904  they  were  $1.94,  an 
increase  of  29.2  per  cent  as  compared  with  an  increase  of 
nearly  34  per  cent  in  the  cost  of  operation.  At  the  same 
time  the  increase  in  net  revenue  per  train-mile  was  only 
12  cents,  or  23.1  per  cent.  Thus  the  percentage  increase 
in  net  revenue  per  train-mile  was  nearly  one  third  less  than 
the  increase  in  operating  expenses. 

Nevertheless,  net  revenues  of  the  railroads  have  been 
considerably  augmented  within  the  last  few  years.  As 
we  have  already  shown,  this  has  come  as  a  result  of  the 

'  These  statistics  are  not  conclusive  owing  to  our  inability  to  estimate 
accurately  tlie  amount  which  has  been  spent  in  permanent  improvements 
and  charged  to  operating  exjienses.  The  statistics  for  lOO.},  which  have 
just  been  publislied,  sliow  a  sHght  decrease  in  the  projxjrtion  of  oj^rating 
expenses. 

'  The  operating  expenses  as  here  used  include  the  cost  of  maintenance, 
but  no  part  of  the  fixed  charges.  (See  Statistics  of  Railways  oj  the 
United  States  for  1899  and  1904.) 


16    FEDERAL  REGULATION   OF  RAILWAY  RATES 

general  prosperity  of  the  country,  and  of  the  great  increase 
in  the  amount  of  business  rather  than  from  the  shght 
advance  of  rates  which  has  occurred.  Every  indication 
tends  to  confirm  the  belief  that  the  present  boom  period 
is  of  a  temporary  character,  and  railroads  are  justly  en- 
titled to  share  in  the  general  prosperity  along  with  other 
industries  in  order  that  they  may  indemnify  themselves 
for  losses  sustained  in  periods  of  depression. 

In  consideration  of  the  point  as  to  the  reasonableness 
of  American  rates  but  one  other  possible  standard  remains 
to  be  considered.  That  is  the  relation  of  income  to  capital 
investment  in  railways.  Do  the  railroads  of  the  United 
States  pay  more  than  a  fair  return  upon  the  amounts 
actually  expended  in  their  construction  and  improvement  ? 
Every  one  would  readily  admit  that  the  individual  who 
risks  his  capital  in  a  railway  enterprise,  which  is  always 
more  or  less  precarious,  is  entitled  to  a  just  compensation 
for  the  interest  on  his  investment,  and  for  the  risk  which 
he  assumes;  for  if  investors  were  to  be  deprived  of  the 
privilege  of  earning  such  returns,  there  would  never  be 
another  mile  of  railway  built  in  this  country,  which  in  the 
present  state  of  our  economic  development  would  be  dis- 
astrous. It  is  necessary,  therefore,  that  we  should  exam- 
ine the  returns  upon  railway  capital  in  order  that  we  may 
determine  whether  or  not  more  than  a  reasonable  rate  of 
interest  has  been  paid  upon  such  investment.  If  it  can  be 
shown  that  railway  capital  is  not  paying  more  than  a  rea- 
sonable return,  we  must  conclude  that  the  public  is  not 
justified  in  taking  steps  which  will  result  in  a  material 
reduction  in  the  returns  upon  that  capital. 

In  order  to  obtain  any  accurate  data  by  which  to 
judge  of  the  reasonableness  of  the  returns  upon  railway 
capital,  it  is  necessary  to  ascertain  as  nearly  as  possible 
the  basis  of  the  capitalization  of  the  various  railroads. 
Unfortunately  the  early  dealings  of  most  of  our  railroads 
are  so  shrouded  in  obscurity  that  accurate  data  for  this 


ARE  AMERICAN  RAILWAY  RATES  EXCESSIVE?    17 

purpose  are  not  obtainable.  Even  estimates  of  the  relation 
of  the  present  railway  capitalization  to  the  amount  of 
capital  actually  invested  are  but  little  better  than  guesses. 
Nevertheless  the  general  impression  of  the  public  is  that 
American  railroads  are  grossly  overcapitalized,  and  that 
dividends  apparently  low  are  in  fact  enormous  when  com- 
pared with  the  amount  of  capital  actually  invested.  It  is 
true  that  this  might  have  been  the  case  at  one  time,  if  divi- 
dends had  been  paid  at  all,  but  the  fact  is  that  scarcely 
any  of  these  overcapitalized  roads  paid  any  dividends 
whatever  during  the  first  decade  or  so  of  their  existence. 
In  the  mean  time  a  great  deal  of  water  was  squeezed  out 
of  their  capitalization,  occasionally  by  reorganization, 
but  more  often  by  the  gradual  enhancement  in  the  value 
of  their  tangible  assets,  by  the  advance  in  the  prices  of 
labor  and  materials,  by  the  enormous  increase  in  the  value 
of  the  rights  of  way  and  terminal  property,  and  by  the 
gradual  investment  of  earnings  in  permanent  improve- 
ments. Therefore  it  cannot  be  doubted  that  the  amount 
of  water  in  the  capitalization  of  American  railways  has 
been  greatly  reduced  if  not  entirely  eliminated. 

It  is  generally  admitted  that  there  is  little  water  in  the 
capitalization  of  European  railways.  Yet  the  average 
capitalization  of  the  railways  of  Europe  is  $127,696  per 
mile,  while  that  of  the  American  railroads  is  but  $61,396. 
It  must  be  borne  in  mind,  however,  that  the  railroads  of 
England,  and  of  some  of  the  countries  of  Southwestern 
Europe,  are  in  general  much  better  constructed  than 
those  of  America.  The  above  average,  however,  includes 
the  railways  of  the  Scandinavian  Peninsula  and  those  of 
Russia,  which  are  on  the  whole  more  poorly  constructed 
than  those  of  the  ITnited  States.  Then,  too,  as  we  have 
already  noted,  the  labor  used  in  the  construction  of  Ameri- 
can railways  was  nearly  three  times  as  expensive,  and  the 
price  of  many  of  the  materials  used  was  higher,  though  the 
cost  of  the  rights  of  way  was  much  less. 


18    FEDERAL  REGULATION    OF   RAILWAY  RATES 

It  is  impossible  to  ascertain  to  just  what  extent,  if  at  all, 
American  railroads  are  overcapitalized  to-day.  Certain 
facts,  however,  must  be  borne  in  mind.  In  the  early  days 
of  railway  history,  overcapitalization  was  absolutely  neces- 
sary. The  investor  believed  that  the  stock  of  a  successful 
enterprise  ought  to  go  to  par,  and  the  difference  between 
the  amount  paid  for  the  stock  and  its  par  value  repre- 
sented to  him  what  he  considered  to  be  a  fair  remunera- 
tion for  the  risk  which  he  assumed.  It  would  have  been 
next  to  an  impossibility  to  have  induced  the  investors  to 
pay  the  face  value  for  a  smaller  amount  of  stock  ;  for  what- 
ever may  be  the  capitalization  of  a  company,  it  is  always 
easier  to  persuade  the  investor  to  take  a  large  amount  of 
stock  at  a  low  figure  than  it  would  be  to  induce  him  to  take 
a  smaller  amount  of  stock  at  a  higher  price.  In  the  more 
settled  conditions  of  railway  finance  which  prevail  to-day 
the  incentive  to  permanently  maintain  a  state  of  inflated 
capitalization  is  not  as  great  as  it  was  in  the  early  days  of 
railroad  history.  For  the  past  twenty  years,  therefore, 
most  of  our  great  railroad  systems  have  been  making  large 
expenditures  for  permanent  improvements  and  paying 
for  them  out  of  current  revenue  instead  of  charging  them 
to  capital  account. 

There  is  another  fact  which  makes  railway  capitaliza- 
tion appear  larger  than  it  really  is.  The  misapprehension 
arises  from  the  fact  that  in  the  statistics  showing  the  total 
capitalization  of  the  railways  of  this  country  and  the  cap- 
italization per  mile  of  line,  a  considerable  portion  of  rail- 
way capital  is  counted  twice.  Wherever  one  railroad  owns 
a  part  of  the  stock  or  bonds  in  another,  it  usually  increases 
its  own  capitalization  sufficiently  to  cover  this  new  asset. 
The  stock  which  is  so  owned  is  thus  represented  in  the 
capitalization  of  both  companies.  The  dividends  upon 
the  stock  thus  held  by  another  company  are  amalgamated 
into  its  general  revenue,  and  are  eventually  again  paid  out 
in  dividends  upon  its  capital.    Thus  the  total  amount  of 


ARE  AMERICAN  RAILWAY  RATES  EXCESSHT  ?    19 

money  paid  out  in  dividends  is  in  reality  much  smaller 
than  it  appears  from  the  statistics.  The  amount  of  rail- 
way stocks  and  bonds  owned  by  other  railroads  was,  in 
1904,  $2,501,330,601,1  ^j.  jjjQj.e  than  twenty  per  cent  of  the 
total  railway  capitalization.  If  this  vast  amount  of  stock 
were  canceled,  as  it  might  properly  be,  in  the  statistics 
showing  the  total  outstanding  capital  account  of  the  rail- 
ways, the  actual  capitalization  per  mile  of  line  would  be 
found  to  be  nearer  $45,000  than  $60,000. 

In  order  to  make  this  point  perfectly  plain,  let  us  assume 
a  specific  case.  Let  A  and  B  rei)resent  two  railroads  of 
2000  miles  of  line  and  a  capitalization  of  $100,000,000 
each.  If  A  desires  to  purchase  one  half  of  the  capital  stock 
of  B,  it  would  probably  issue  a  sufficient  amount  of  its 
own  stock  or  bonds  to  cover  the  necessary  outlay.  It  would 
thus  increase  its  own  outstanding  capital  account  by 
$50,000,000,  but  it  would  hold  in  its  treasury  $50,000,000 
of  the  stock  of  B  as  the  asset  upon  which  the  increase  was 
made.  The  outstanding  capital  account  of  the  two  rail- 
ways would  then  be  as  follows: 

Capital  stock  and  bonds  of  A  outstanding,  $150,000,000 

"      "   B           "  100.000,000 

Amount  of  canitiil  stock  of  B  in  treasury  of  A,  50.000,000 

Total  outstanding  stock  and  bonds,  250,000,000 

Thus  after  this  transaction  we  find  that  the  total  capital- 
ization of  the  two  roads  has  been  increased  by  $50,000,000, 
while  the  average  capitalization  per  mile  of  line  has  been 
increased  from  $50,000  to  $62,500.  In  a  transaction  such 
as  this  there  is  no  stock- watering  whatever.  The  in- 
crease in  capitalization  is  only  nominal.  Obviously  the 
actual  amount  of  securities  upon  which  dividends  must  be 
paid  from  the  earnings  from  operation  has  not  been  in- 
creased or  decreased.  The  same  amount  of  net  revenue  will 

*  In  1905  the  total  amount  of  railway  stocks  and  bonds  owned  by 
other  railways  was  $'2,638, 152,1'29,  representing  an  increase  of  5.5  per 
cent  over  190i. 


20      FEDERAL  REGULATION  OF  RAILWAY  RATES 

therefore  pay  the  same  rate  of  dividends  upon  the  total 
capitaHzation  as  formerly. 

Only,  then,  by  excluding  the  amount  of  railway  secur- 
ities held  by  other  railroads  may  we  obtain  a  basis  for 
determining  the  increase  or  decrease  of  railway  capitaliza- 
tion relative  to  the  value  of  the  tangible  assets,  or  to  the 
number  of  miles  of  line.  Using  this  method  of  computa- 
tion we  find  that  in  1880  the  average  capitalization  per 
mile  of  main  line  was: 

Capital  stock  $27,700 

Bonds  25,400 

Total  $53,100 

At  that  time  there  were  87,800  miles  of  railway  in  the 
United  States,  and  20,300  miles  of  second,  third,  and  fourth 
track  and  sidings.  In  1903  there  were  207,000  miles  of 
main  line  and  61,000  miles  of  auxiliary  tracks.  The 
capitalization  per  mile  of  line  at  that  time  was: 

Capital  stock  $21,050 

Bonds  23,700 

Total  $'14,750 

Thus  the  average  capitalization  per  mile  of  line  has 
decreased  $8350,  or  15.7  per  cent.  This  has  been  accom- 
plished in  spite  of  the  relative  increase  of  more  than  thirty 
per  cent  in  the  number  of  miles  of  auxiliary  tracks,  the 
better  ballast,  the  removal  of  curves,  the  cutting-down  of 
grades,  the  boring  of  tunnels,  the  substitution  of  steel  for 
wooden  bridges,  the  heavier  steel  rails,  additional  signal- 
ing and  other  safety  devices,  the  enormous  increase  in  the 
number,  size,  and  capacity  of  the  locomotives  and  cars, 
more  commodious  stations  and  terminal  facilities,  greater 
comfort  and  speed  for  the  traveling  public,  the  elevation 
of  tracks  in  some  of  the  larger  cities,  and  above  all  the  enor- 
mous increase  in  the  value  of  the  rights  of  way  and  other 
railway  property.  In  fact,  it  is  believed  by  a  large  number 
of  railway  experts  that  the  railroads  of  America  could  not 
be  reduplicated  to-day  for  a  sum  equal  to  their  present 
capitalization. 


ARE  AMERICAN  RAILWAY  RATES  EXCESSIVE?    21 

If,  then,  we  may  assume  that  the  capitalization  of 
American  raihvays  is  not  at  present  greatly  excessive,  we 
must  conclude  that  the  returns  which  are  now  being  paid 
upon  that  capital  are  on  the  whole  very  moderate.  For 
twelve  years,  1888  to  1900,  an  average  of  G3.94  per  cent  of 
American  railway  stock  paid  no  dividends  whatever.  Even 
during  the  present  era  of  prosperity  42.53  per  cent  of  the 
total  railway  stock  paid  no  dividends  for  the  year  1904, 
while  4.49  pcrcentof  the  funded  debt  paid  no  interest.  But 
during  the  period  1888  to  1900,  the  proportion  of  the  bonds 
which  paid  no  interest  was  much  larger,  and  as  a  result 
of  this  fact,  nearly  all  of  our  great  railway  systems,  at  one 
time  or  another,  have  been  driven  into  bankruj)tcy,  fre- 
quently resulting  in  an  almost  total  loss  to  the  stockholders. 
The  following  table  will  show  the  low  returns  which  have 
been  paid  upon  railway  stocks  since  1888:  * 


Year 

Per  cent  of  stock  paying 

Average  rate  paid  upon 

no  dividends. 

all  stock. 

1889 

61.67 

1.95 

1891 

59.64 

2.25 

1898 

61.24 

1.73 

1896 

70.06 

1.65 

1897 

70.10 

1.57 

1899 

69.39 

1.95 

1901 

48.73 

2.67 

1903 

45.94 

3.19 

1904 

42.53 

3.51 

1905 

37.16 

3.57 

There  is  certainly,  therefore,  no  cause  to  complain  that 
our  railroads  have  paid  an  unrea.sonably  high  rate  of  divi- 
dends. If  we  assume  that  during  this  period  .50  per  cent 
or  CO  j>er  cent  of  the  total  capital  stock  was  water,  the  aver- 
age returns  upon  the  actual  cajiital  would  still  be  very 
small.  We  conclude,  therefore,  that  the  average  returns 
upon  railway  capital  have  not  been  above  the  average  re- 
turns upon  other  kinds  of  investment. 

From  every  point  of  view,  therefore,  American  railway 
rates  are,  in  general,  verj'  reasonable.   But  from  this  fact 

*  Statistics  of  Railways  of  United  States,  1904,  p.  60,  and  1905.  p.  58. 


22     FEDERAL  REGULATION  OF  RAILWAY  RATES 

alone  we  cannot  derive  a  perfect  guarantee  for  the  future. 
It  is  a  perilous  thing  to  leave  such  vital  interests  as  those 
of  transportation  unreservedly  to  the  control  of  irrespon- 
sible private  individuals.  Economic  causes  have  hitherto 
checked  the  greed  of  railway  capitalists,  but  as  certain 
forms  of  competition  are  becoming  extinct,  we  have  some 
grounds  of  apprehension  for  the  future.  As  we  shall  sub- 
sequently show,  however,  that  which  is  needed  is  ade- 
quate and  expeditious  machinery  for  preventing  extortion 
and  excessive  charges,  rather  than  a  transfer  of  the  re- 
sponsibihty  of  rate-making  from  the  railroads  to  the  govern- 
ment. 

We  shall  now  turn  to  a  discussion  of  the  relative  inequal- 
ity of  rates  in  connection  with  which  we  shall  find  abuses 
which  constitute  a  better  foundation  for  the  demand  for 
public  regulation. 


CHAPTER  II 

FEDERAL  CONTROL  OF  RATES  IS  NECESSARY 

In  the  preceding  chapter,  it  has  been  shown  that  the 
real  ground  of  complaint  against  the  railroads  is  not  that 
rates  in  general  are  excessive,  but  that  they  are  inequitable. 
One  shipper  or  one  locality  is  especially  favored  as  com- 
pared with  other  shippers,  or  with  other  localities  similarly 
situated;  or  one  class  of  commodities  is  placed  at  a  disad- 
vantage, as  compared  with  other  competing  commodities. 
In  other  words,  railroads  are  charged  with  unlawful  and 
unjust  favoritism. 

At  first  thought,  it  would  appear  that  a  good  case  might 
be  made  out  against  the  railroads  upon  these  grounds. 
Discriminations  in  rates  are  everywhere  so  apparent  as  to 
require  no  presentation  of  evidence  to  prove  their  existence. 
Upon  investigation,  however,  it  will  be  found  that,  aside 
from  personal  discrimination,  cases  of  unjust  favoritism 
on  the  part  of  the  railroads  are  extremely  rare.  Railroads 
are  not  in  business  for  the  purpose  of  conferring  special 
favors  upon  particular  localities  or  individuals.  Their  aim 
is  to  secure  the  largest  net  revenue  possible.  In  ever}-  case, 
therefore,  they  charge  the  highest  rate  which,  in  their 
opinion,  is  consistent  with  their  permanent  interests.  If  one 
locality  ol)tains  a  rate  lower  than  that  given  to  another, 
it  is  usually  not  because  the  railroad  wishes  to  favor  that 
locality,  but  because  it  is  unable  to  cliarge  more  without 
losing  traffic  to  the  extent  that  there  would  be  a  loss  in 
net  returns.  Nobody  would  criticise  the  railroads,  in  any 
given  case,  for  making  their  rates  low  enough  to  stimulate 
traffic  sufficiently  to  give  them  greatest  net  returns.    But 


OF 


24     FEDERAL  REGULATION  OF  RAILWAY  RATES 

how  about  those  other  points,  where  rates  are  not  reduced 
to  the  same  extent  ?  Obviously,  the  reason  these  rates  are 
not  so  reduced  is  that  the  railroads  cannot  increase  their 
net  returns  by  a  reduction.  There  must  be,  therefore, 
something  inherently  different  in  the  nature  of  the  business 
at  the  respective  shipping-points.  The  former  locality  may 
have  the  advantages  of  water  competition,  it  may  have 
the  advantage  of  the  competition  of  several  railroads,  or 
it  may  possess  great  natural  or  acquired  advantages  for 
developing  traffic  and  carrying  on  a  given  industry.  Is  it 
not,  therefore,  to  be  expected  that  the  railroads,  in  their 
attempt  to  develop  the  largest  amount  of  traffic  possible, 
will  recognize  these  natural  and  acquired  advantages, 
and  adjust  their  rates  accordingly?  There  is  no  unjust 
discrimination  against  the  locality  which  does  not  possess 
these  advantages  and  is  charged  a  higher  rate,  unless  it 
can  be  shown  that  a  reduction  of  rates  to  that  point  would 
be  equally  advantageous  with  respect  to  development  of 
traffic.  The  only  valid  grounds  of  complaint,  therefore, 
would  be  the  enforcement  of  rates  either  excessive  in 
themselves,  or  established  as  the  result  of  capricious  or 
unreasonable  discrimination  on  the  part  of  the  railroads. 

Upon  close  examination  of  the  various  complaints 
brought  before  the  Interstate  Commerce  Commission, 
however,  it  will  be  seen  that  cases  of  capricious  or  unreason- 
able discrimination  are  extremely  rare.  Nine  out  of  ten 
of  the  cases  of  alleged  discrimination  between  the  localities 
arise  from  the  fact  that  certain  local  points  do  not  possess 
the  advantages  of  competition,  such  as  may  have  resulted 
in  a  disproportionate  reduction  in  the  rates  to  some  more 
favored  competitive  point. 

Now  what  might  be  expected  to  result  if  the  govern- 
ment were  to  undertake  to  equalize  these  natural  and 
acquired  advantages,  and  thus  put  the  local  points  upon 
an  equal  footing  with  the  competitive  points?  This 
could  be  accomplished  only  by  one  of  two  means:  either 


FEDERAL  CONTROL  IS  NECESSARY  25 

by  raising  through  rates,  or  by  reducing  local  rates.  In 
the  preceding  chapter  it  has  been  shown  that  rates  on 
American  railways  are  not  generally  excessive,  and  that 
the  returns  upon  capital  invested  in  railways  have  been 
very  moderate  indeed.  If,  then,  the  returns  upon  such 
capital  were  substantially  reduced  below  the  present  point, 
railway  development  in  the  future  would  be  seriously 
crippled.  Any  serious  reduction,  therefore,  in  the  local 
rates  throughout  the  country,  without  a  corresponding  in- 
crease in  the  through  rates,  would  tend  to  bring  al)out  such 
undesirable  results.  Would  it  then  be  advantageous  to  se- 
cure an  advance  in  through  rates,  and  if  so  by  what  means 
might  that  end  be  attained  ?  These  low  competitive  rates 
may  be  increased  in  only  two  ways.  Either  a  minimum  rate 
may  be  established,  which  would  result  in  the  destruction 
of  the  competition  hitherto  existing  at  the  competitive 
points,  or  legislation  may  reduce  the  local  rates,  and  drive 
the  railroads  themselves  to  combine  in  order  to  raise  their 
through  rates  and  thus  prevent  a  complete  annihilation 
of  their  profits.  In  fact  it  would  be  impossible  for  the  gov- 
ernment to  secure  an  advance  in  any  competitive  rate 
without  resorting  to  one  or  both  of  these  means.  In  either 
case  legitimate  competition  in  rates  is  destroyed.  It  is  very 
questionable  whether  such  a  result  is  desirable.  In  fact, 
tlie  opinion  of  railway  experts  is  almost  unanimous  that 
the  great  decline  in  the  railway  rates  of  this  country  has 
been  brought  about  princijially  through  the  agency  of 
competition.  Even  the  most  ardent  advocates  of  govern- 
ment regulation  admit  that  legislation  could  never  have 
accomplished  similar  results,  and,  as  we  have  already 
seen,  the  decline  has  been  least  rapid  in  those  countries 
where  legislation  has  been  the  most  drastic. 

Moreover  the  fixing  of  a  minimum  rate  will  be  at- 
tended with  evils  of  a  peculiar  nature.  Not  only  does  it 
destroy  all  legitimate  competition,  but  it  encourages  and 
places  a  premium  upon  that  competition  which  is  illegiti- 


26     FEDERAL  REGULATION  OF  RAILWAY  RATES 

mate.  Legitimate  competition,  in  many  cases,  has  already 
reduced  the  rates  to  competitive  points  to  so  low  a  figure 
that  additional  reductions  cannot  be  made  with  profit. 
Hence  there  is  little  inducement  for  the  traffic  manager, 
in  such  cases,  to  cut  under  the  published  charges  by  giv- 
ing rebates,  and  the  amount  which  he  can  give  in  re- 
bates is  necessarily  limited  by  the  narrow  margin  of  profit. 
However,  if  the  government  should  step  in  and  raise 
a  competitive  rate  of  this  character,  there  would  no 
longer  be  any  possibility  of  any  competition  in  the  published 
rates,  and  whatever  rivalry  to  secure  traffic  still  existed 
between  the  railroads  would  be  directed  to  the  giving  of 
secret  rebates,  which  would  then  have  become  profitable. 
Furthermore,  the  principle  of  fixing  minimum  rates,  if  put 
into  practice,  would  lead  to  the  very  evils  which  are  sought 
to  be  remedied.  Suppose  a  minimum  rate  were  established 
from  Minneapolis  to  Chicago.  Instantly  all  the  roads  lead- 
ing from  Duluth  to  Chicago,  and  those  from  all  the  other 
points  competing  with  Minneapolis,  would  perceive  their 
advantage  and  would  make  rates  which  would  result  in 
depriving  Minneapolis  and  the  Minneapolis  roads  of  their 
share  in  the  grain  business.  It  would  then  be  necessary  for 
the  Commission  to  fix  a  minimum  rate  from  all  these  points 
to  Chicago.  Then  some  road  would  find  that  by  shipping 
the  grain  on  two  bills  of  lading  by  some  roundabout  route, 
it  could  make  a  through  rate  which  would  enable  it  to 
secure  the  greater  portion  of  the  business.  In  such  a  case, 
it  would  be  necessary  for  the  Commission  to  fix  a  mini- 
mum rate  to  and  from  all  of  these  intermediate  points  in 
order  to  prevent  evasions  of  the  law.  Soon  we  would  have 
a  whole  system  of  minimum  rates,  and  legitimate  compe- 
tition in  rates  would  be  wholly  destroyed.  Then  steamship 
lines,  which  are  not  subject  to  the  act  to  regulate  commerce, 
would  step  in  and  absorb  a  large  portion  of  the  traffic, 
which,  under  conditions  of  free  competition,  the  railways 
would  have  been  able  to  secure.  The  result  would  be  that 


FEDERAL  CONTROL  IS  NECESSARY  27 

we  should  soon  have  conditions  somewhat  analogous  to  those 
which  prevail  in  Fnmcc  and  Germany,  where  tJie  railroads 
are  ])raetically  prohibited  from  making  rates  which  would 
enal)le  them  to  compete  with  the  water  routes. 

The  absurdity  of  giving  a  commission  the  power  to  fix 
minimum  rates  ^  is  so  apparent  that  the  subject  would 
scarcely  be  worthy  of  notice  were  it  not  for  the  fact  that 
that  policy  has  received  such  strong  support  in  so  many 
influential  quarters.  The  Commission  itself  has  frequently 
asked  for  that  power.  The  principle  was  advocated  in  the 
President's  Message  of  December,  1904,  and  was  subse- 
quently embodied  in  the  Esch-Townsend  Bill,  Avhich  came 
so  near  becoming  a  law.  Till  quite  recently  it  was  the  pro- 
gramme of  the  Democratic  minority  in  botli  the  Senate 
and  the  House.  It  is  argued  that  such  a  measure  is  the  only 
means  by  which  certain  inequalities  may  be  remedied.  Let 
A  and  B  represent  two  competing  markets,  served  by  two 
difterent  railroads.  If  B  obtains  a  rate  which  is  proportion- 
ately lower  than  the  rate  to  A,  the  citizens  of  A  will  com- 
plain that  they  are  subjected  to  an  undue  disadvantage, 
since  the  railroads  serving  it  do  not  meet  the  reductions 
to  B.  In  order  to  remedy  this  discrimination,  it  would  be 
necessary  either  to  raise  the  rate  to  B,  or  to  reduce  the  rate 
to  A.  But  the  rates  to  A  may  already  be  reasonable  j)er  se, 
and  as  the  roads  leading  to  that  point  have  taken  no  part  in 
the  undue  reductions  to  B  tiiere  are  no  justifiable  grounds 
upon  which  they  could  be  compelled  to  reduce  their  rates. 
It  is  argued,  therefore,  that  the  only  remedy  for  such  a 
situation  would  be  to  raise  tlie  rate  to  B,  which  may  ap- 
pear unreasonalily  low,  perhaj^s  unprofitable.  But  what 
would  be  the  result  of  such  action  .^  As  already  pointed 
out,  tlie  roads  leading  to  A,  and  Uiose  leading  to  every 
other  competitor  of  B,  would  immediately  make  rates 
which  would  deprive  B  of  its  business,  since  Uie  roads  at 

*  In  the  Hepburn  Act  as  finally  passed,  the  Commission  is  not  au- 
thorized to  fix  minimum  rates. 


28     FEDERAL  REGULATION  OF  RAILWAY  RATES 

that  point  would  no  longer  be  able  to  protect  their  traffic 
by  meeting  these  reductions.  In  the  mean  time,  while  all 
these  other  rates  were  being  "fixed,"  irretrievable  harm 
might  result  to  B. 

The  foregoing  arguments  show  that  the  elimination 
of  many  of  the  inequalities  of  rates  which  prevail  to-day 
would  be  impossible  without  overthrowing  the  whole  com- 
petitive system  of  rate-making  under  which  the  remark- 
able development  of  the  resources  of  our  country  has  taken 
place.  But  though  the  inequalities  arising  from  natural 
or  acquired  advantages,  or  from  railway  competition,  are 
generally  of  such  a  nature  as  not  to  admit  of  remedy,  is 
it  not  true  that  there  are  cases  of  unjust  and  capricious 
discrimination  which  do  require  a  remedy  ?  Upon  an 
examination  of  the  complaints  before  the  Interstate  Com- 
merce Commission,  it  will  be  found  that  such  instances  are 
in  fact  of  infrequent  occurrence.  Yet  cases  of  this  kind 
have  occurred  and  may  occur  again.  Discrimination  be- 
tween localities  may  be  used  as  a  pretext  for  personal  dis- 
crimination. Thus  it  was  alleged  in  the  testimony  before 
the  Industrial  Commission  that  the  apparently  lower  rates 
on  oil  from  points  where  the  Standard  Oil  refineries  were 
located  were  made  by  the  railroads  in  order  to  give  those 
refineries  an  advantage  over  the  independent  refineries  lo- 
cated at  other  points.  It  is  altogether  likely  that,  wherever 
no  other  disturbing  factors  appeared,  these  departures  from 
the  observance  of  the  ordinary  principles  of  rate-making 
were  made  with  some  such  ulterior  motives  as  alleged. 
Whatever  influence  the  large  corporations  have  over  the 
railroads  may  be  used  to  prevent  the  extension  of  equally 
low  rates  to  points  where  their  competitors  are  located. 
The  inequality  of  rates  which  results  is  not  a  personal  dis- 
crimination within  the  meaning  of  the  law,  yet  as  far  as  its 
practical  effects  are  concerned,  it  amounts  to  the  same 
thing.  Of  course  no  harm  would  result  if  the  independent 
producer  could  move  his  plant  to  the  more  favored  point 


FEDERAL  CONTROL  IS  NECESSARY  29 

without  loss,  but  this  is  im{)ossiblc  after  large  amounts  of 
capital  have  been  invested  in  specialized  buildings  and 
machinery.  There  should  certainly  be  some  means  by  which 
the  government  may  correct  discriminations  which  arise 
under  such  circumstances  as  these.  But  such  discrimina- 
tions are  already  unlawful  under  the  Interstate  Commerce 
Law,  which  forbids  all  forms  of  unjust  discrimination  be- 
tween persons  and  f)laces.  What  is  needed,  therefore,  is 
a  quick  and  effective  means  of  enforcing  the  present  law. 
Another  form  of  unjust  discrimination  between  local- 
ities is  that  which  frequently  occurs  where  a  railroad  or  its 
managers  are  personally  interested  in  the  development  of 
some  {)articular  point.  It  is  not  infrequently  the  case  that 
railway  managers  own  elevator  or  other  interests  at  some 
important  grain  centre.  By  extending  especially  low  rates 
to  that  point,  they  are  able  to  build  up  the  business  of  that 
particular  locality  at  the  expense  of  other  points,  which, 
but  for  the  difference  in  the  rate,  might  be  able  to  become 
strong  competitors  with  the  more  favored  point  in  carrj'- 
ing  on  the  industry  in  question.  Furthermore,  as  soon  as 
the  boom  at  the  more  favored  point  has  reached  its  height, 
there  is  nothing  to  prevent  the  railway  interests  from  sell- 
ing out  their  property  at  inflated  values,  and  then  turning 
their  attention  to  the  development  of  some  new  point  in 
which  they  may  have  become  interested.  There  is  no  eco- 
nomic justification  in  discriminations  such  as  these  and 
they  should  be  prevented.  A  common  practice  has  been 
for  railroads  interested  in  ^Ycstern  lands  to  grant  especially 
low  rates  on  grain  from  points  where  their  lands  are  lo- 
cated. They  endeavor  to  build  up  those  sections  at  the  ex- 
pense of  other  territory.  The  practice  of  granting  especially 
low  rates  to  certain  points  would  not  l)e  an  evil  in  itself,  but 
frequently  unreasonably  higher  charges  are  made  to  other 
points  in  order  to  force  development  into  the  particular 
channels  which  will  be  of  personal  profit  to  the  railway 
managers.   Any  inequality  of  rates  which  cannot  be  justi- 


30      FEDERAL  REGULATION  OF  RAILWAY  RATES 

fied  from  the  standpoint  of  the  railway  as  a  common  car- 
rier, with  no  ulterior  interests  whatever,  in  the  nature  of 
things  is  an  unjust  discrimination,  and  therefore  unlaw- 
ful. If  the  railroads  were  prevented  from  making  such 
discriminations  as  these,  proportionately  low  charges  would 
be  made  over  the  whole  section,  since  the  railroads  would 
then  find  it  to  their  interests  to  develop  the  whole  country 
which  they  serve.  On  the  whole,  however,  it  must  be  ad- 
mitted that  cases  of  unjust  discrimination  between  local- 
ities are  extremely  rare,  and  where  cases  of  this  character 
have  been  brought  to  the  attention  of  the  railroads,  they 
usually  remedy  them  at  once,  without  formal  proceedings 
upon  the  part  of  the  Commission. 

But  there  is  another  class  of  discriminations  which 
are  much  more  common  and  less  often  justifiable.  Such 
are  the  discriminations  between  similar  classes  of  com- 
modities. Yet  even  in  respect  to  discriminations  of  this 
character,  a  close  examination  will  show  that  the  great 
majority  of  cases  which  have  been  made  the  subject  of 
protest  are  the  result  of  legitimate  competition.  Attempt 
to  remedy  such  discriminations  would  lead  to  the  same 
difficulties  as  the  attempt  to  do  away  with  the  discrimina- 
tions between  localities  which  arise  from  the  competition 
of  railroads  or  from  peculiar  natural  or  acquired  advant- 
ages. If  the  higher  rate  were  found  to  be  reasonable 
fer  se,  the  only  means  by  which  the  discrimination  could 
be  prevented  would  be  through  the  destruction  of  that 
competition  which  had  given  rise  to  it,  —  an  end  by  no 
means  desirable.  Thus  in  the  recent  decision  handed  down 
by  Judge  Bethea,  of  the  United  States  Circuit  Court,  in 
the  case  involving  discrimination  between  live  stock  and 
packing-house  products  from  Missouri  River  points  to 
Chicago,  it  was  held  that  the  lower  rates  on  packing-house 
products  were  the  result  of  legitimate  competition.  The 
Great  Western  had  taken  the  initiative  in  a  reduction  of 
the  rate  on  packing-house  products,  and  the  other  roads 


I 


FEDERAL  CONTROL  IS  NECESSARY  31 

had  been  compelled  to  follow.  The  same  forces  had  not 
operated  to  bring  about  a  reduction  in  the  rates  on  live 
stock,  though  these  rates  were  shown  to  be  quite  reasonable 
in  themselves.  If  a  discrimination  of  this  character  were 
to  be  remedied,  the  remedy  could  be  had  only  by  a  reduc- 
tion in  the  rates  on  live  stock,  or  by  increasing  the  rate 
on  packing-house  products;  that  is  to  say  in  the  one 
case,  by  depriving  the  roads  of  a  fair  return  for  their 
services,  and  in  the  other  by  destroying  legitimate  com- 
petition. 

But  still  there  are  a  large  number  of  instances  of 
such  discrimination  which  cannot  be  justified  on  economic 
grounds.  Thus  a  railroad,  while  making  a  low  commod- 
ity rate  on  other  rough  lumber,  placed  railroad  ties  in  the 
fifth  class,  thereby  exacting  a  rate  which  was  practically 
prohibitive  upon  the  movement  of  that  material.^  The 
object  of  tliis  discrimination  was  that  the  railroad,  being 
itself  a  large  consumer  of  railroad  ties,  wished  to  keep 
this  material  upon  its  own  line,  and  to  depress  the  price 
so  that  it  could  obtain  it  at  a  "reasonable  figure"  at 
such  time  as  it  saw  fit.  Of  course  the  railroad  took  into 
consideration  the  fact  that  as  the  forests  were  being  cleared 
away,  material  of  little  use  but  for  railroad  ties  would  be 
cut  down  with  the  rest,  and  as  this  material  would  not 
bear  transportation,  owing  to  the  excessive  rate  applied 
to  it,  the  railroad  would  cAcntually  be  able  to  buy  up  these 
ties  practically  at  its  own  price. 

There  are  only  three  conditions  under  which  dis- 
crimination between  similar  classes  of  commodities  may 
be  justified.  The  first  condition  is  met  wherever  compe- 
tition has  acted  with  peculiar  force  in  reducing  tlie  rates 
upon  one  commodity  more  than  another.  An  instance  of 
this  kind  of  justifiable  discrimination  is  exhibited  in  the 
recent  cattle  case  cited  above. 

*  Thomas  J.  Reynolds  r*.  The  Western  New  York  and  Penn.  Rafl- 
way  Co.,  1  Interstate  Commerce  Commission  Reports,  393. 


32     FEDERAL  REGULATION  OF  RAILWAY  RATES 

Secondly,  discrimination  between  similar  classes  of  com- 
modities is  justifiable  when  the  higher  charges  are  reason- 
able in  themselves,  and  the  lower  charges  are  the  highest 
which  the  traffic  will  bear.  An  instance  of  such  discrimina- 
tion is  that  which  is  frequently  made  between  anthracite 
and  bituminous  coal.  The  Eastern  roads  charge  a  much 
higher  rate  upon  the  former  than  upon  the  latter.  Yet  upon 
most  of  the  Eastern  roads  the  rates  upon  anthracite  coal 
are  very  reasonable,  when  considered  apart  from  the  lower 
rates  upon  bituminous  coal,  which,  in  most  cases,  barely 
exceed  the  cost  of  service.  But  if  the  rates  on  the  latter 
were  increased,  the  Eastern  markets  would  cease  to  con- 
sume bituminous  coal  shipped  from  the  West,  but  would 
draw  their  entire  supplies  from  coal  brought  in  by  water 
from  Canada  or  from  other  North  Atlantic  points.  On  the 
other  hand,  many  roads  west  of  Chicago  charge  a  lower 
rate  on  anthracite  than  on  bituminous  coal.  This  results 
from  the  effort  upon  the  part  of  the  railroad  to  encourage 
the  consumption  of  anthracite  coal  in  the  Western  States, 
which,  owing  to  the  long  distance  which  it  must  be  trans- 
ported, would  otherwise  be  so  expensive  as  to  be  beyond 
the  reach  of  the  ordinary  consumer. 

In  the  third  place,  discrimination  between  competing 
commodities  may  be  justified  on  the  ground  that  the  cost 
of  transporting  one  commodity  is  greater  than  that  of  the 
other.  An  instance  of  such  justifiable  discrimination  is  the 
common  practice  of  charging  less  for  furniture  in  the  flat 
than  in  its  finished  state.  It  costs  much  less  to  handle  the 
material  in  this  form,  and  the  railroads  are  therefore  justi- 
fied in  making  an  allowance  in  the  rate  for  this  difference. 
In  cases  of  this  kind,  however,  there  is  no  justification  for  a 
discrimination  greater  than  the  difference  in  the  respective 
costs  of  service.  While  it  might  be  impossible  to  compute 
absolute  costs  of  service,  the  difference  in  relative  costs 
may  be  computed  with  a  fair  degree  of  accuracy.  The  rail- 
roads should,  therefore,  be  compelled  to  justify  a  discrim- 


FEDERAL  CONTROL  IS  NECESSARY  33 

ination  of  this  character  by  an  actual  difference  in  the 
assignable  cost  of  service. 

Unfortunately,  as  already  pointed  out  in  the  case  of  the 
discrimination  against  railroad  ties,  many  of  the  discrim- 
inations between  similar  classes  of  commodities  cannot 
be  justified  upon  any  of  these  grounds.  Discriminations 
of  this  character  may  result  from  personal  favoritism  on 
the  part  of  the  railway  managers  or  from  caprice.  The 
same  economic  forces  do  not  interpose  to  make  fair  deal- 
ing essential  to  the  highest  welfare  of  the  railroad  itself,  as  is 
generally  the  case  in  the  settlement  of  differentials  between 
competing  localities.  In  fact,  it  is  usually  a  matter  of  in- 
difference to  the  railroads  which  of  two  competing  com- 
modities they  handle,  or  whether  they  carry  the  goods  in  the 
raw  or  in  the  finished  state,  provided  their  total  amount  of 
traflBc  remains  the  same. 

A  common  case  of  discrimination  of  this  kind  is  that 
made  between  grain  and  grain  products.  It  may  be  a  mat- 
ter of  indifference  to  the  railroads  whether  they  handle  the 
grain  itself  or  the  flour  and  the  meal.  And  yet,  sh'ght  dif- 
ferentials in  the  rates  upon  these  two  commodities  may 
have  tremendous  effect  upon  the  development  of  the  indus- 
tries of  large  sections  of  the  country.  A  differential  of  a 
few  cents  would  determine  whether  the  flour-mills  of  Minne- 
sota should  thrive,  or  those  of  the  State  of  New  York, 
whether  the  corn-meal  used  in  Texas  should  be  ground  in 
that  state,  or  in  Kansas,  whence  Texas  draws  its  corn 
supply.  Arbitrary  changes  in  a  differential  of  tiiis  kind 
may  result  in  the  destruction  of  millions  of  dollars'  worth 
of  fixed  capital,  and  the  building  up  of  the  industry  in  some 
other  section  without  the  slightest  aggregate  advantage  to 
society  as  a  whole.  In  all  this  the  railroads  themselves 
would  lose  nothing.  In  fact,  they  would  gain  by  securing 
the  traffic  of  carrying  the  men  and  materials  necessary  to 
build  up  the  industry  in  the  new  section.  In  the  very  na- 
ture of  things,  it  is  unjust  that  the  railroads,  whose  interest 


34     FEDERAL  REGULATION  OF  RAILWAY  RATES 

in  such  cases  is  very  slight,  should  have  the  final  power  of 
deciding  such  issues,  while  society,  whose  interests  are  so 
large,  should  have  nothing  to  say. 

Many  instances  of  sudden  and  arbitrary  changes  in  the 
differentials  upon  competing  classes  of  commodities  might 
be  given,  and  frequently  the  public  has  suffered  severe  loss 
in  property  values  as  the  result  of  such  actions.  Take  the 
case  of  the  recent  advance  in  the  rate  on  corn-meal  from 
Kansas  points  to  Texas.  ^  For  ten  years  the  rate  on  corn- 
meal  had  been  three  cents  higher  than  the  rate  on  com. 
On  the  basis  of  this  differential  the  Kansas  millers  had 
found  themselves  able  to  compete  with  the  Texas  millers, 
and  a  large  portion  of  the  corn-meal  used  in  Texas  was 
ground  in  Kansas.  In  January,  1905,  at  the  instigation  of 
the  millers  of  Texas,  the  Railroad  Commission  of  that  state 
announced  a  hearing  for  the  purpose  of  determining  whether 
intrastate  grain-rates  should  be  reduced.  In  order  to  pre- 
vent this,  the  railroads  went  to  the  millers  and  made  a  bar- 
gain with  them.  If  the  millers  would  agree  to  drop  their 
complaint  before  the  Texas  Commission,  the  railroads,  on 
their  part,  would  advance  the  rate  on  corn-meal  so  as  to 
exclude  the  Kansas  millers  from  the  Texas  market.  The 
bargain  was  carried  out  to  the  letter.  The  millers  failed 
to  appear  before  the  Commission  upon  the  date  set  for  the 
hearing,  and  the  grain -rates  within  the  state  were  not  re- 
duced, while  on  the  19th  of  February,  the  railroads  ful- 
filled their  part  of  the  contract  by  advancing  the  rate  on 
corn-meal  by  an  average  of  5|  cents  per  100  lbs.,  without 
any  corresponding  increase  in  the  rate  on  corn.  The  result 

1  Hearings  of  the  members  of  the  Interstate  Commerce  Commission 
before  the  Senate  Committee,  testimony  of  Charles  A.  Prouty,  p.  18. 

See  also:  11  I.  C.  C.  Rep.  220.  Upon  April  15,  the  differential  was 
reduced  to  five  cents  to  all  Texas  points. 

After  an  extended  hearing  upon  the  case  the  Commission  decided  that 
any  differential  exceeding  three  cents  per  100  lbs.  would  result  in  undue 
prejudice  to  the  shippers  of  corn-meal,  and  the  roads  were  accordingly 
ordered  to  cease  and  desist  from  charging  a  differential  in  excess  of  that 
amoimt. 


FEDERAL  CONTROL  IS  NECESSARY  85 

was  that  the  Kansas  millers  were  practically  prohibited 
from  shipping  any  corn-meal  into  the  State  of  Texas. 
Thus  the  principal  market  of  a  verj'  important  industry 
of  Kansas  was  swept  away  by  the  stroke  of  a  pen.  Not  only 
will  the  Kansas  millers  lose,  l)ut  the  Texas  consumers  will 
lose  also.  Texas  is  unsuited  for  carrying  on  the  milling  in- 
dustry. Mills  were  introduced  into  Texas  more  than  twenty 
years  ago.  Yet  the  Kansas  mills,  handicapped  as  they  were 
by  a  differential  of  three  cents  per  100  lbs.,  found  them- 
selves able  to  compete  with  the  millers  of  Texas  in  supply- 
ing that  market.  The  Texas  millers  have  now  secured  the 
monopoly  which  they  desired,  and  the  Texas  consumers 
will  pay  for  it  in  the  price  of  meal. 

The  Interstate  Commerce  Commission  has  frequently 
recognized  the  right  of  the  railroads  to  charge  a  higher 
rate  on  flour  and  meal  in  proportion  to  the  greater  cost  of 
service.  Still  the  difference  in  the  cost  of  handling  these 
commodities  is  very  slight  indeed,  since  the  extra  work  of 
loading  and  unloading  flour  is  done  by  the  consignor  and 
the  consignee.  After  the  cars  have  once  been  loaded  there 
is  absolutely  no  difference  in  the  cost  of  handling  wheat  and 
flour  excepting,  perhaps,  a  slightly  greater  terminal  charge 
for  flour.  This  diiference  seldom  amounts  to  more  than 
one  cent  per  100  lbs.  The  public  has  a  right  to  demand  that 
differentials  of  this  character  should  not  be  arl)itrarily 
increased  where  conditions  do  not  warrant  such  increase. 

On  one  occasion  tlie  railroads  threatened  to  destroy 
the  whole  export  flour  industry  of  the  Northwest.'  The 
rates  on  wheat  and  flour  had  been  the  same  for  many  years. 
Suddenly  tlie  roads  advanced  the  rate  on  flour  till  they 
exceeded  those  on  wheat  by  from  four  to  eleven  cents 
per  100  lbs.  The  result  was  that  the  exports  of  flour  in- 
stantly fell  off  as  compared  with  those  of  wheat.  As 
long  as  these  rates  prevailed,  the  Western  millers  were 

*  In  the  matter  of  relative  rates  on  export  and  domestic  traffic  in  grain, 
and  in  grain  products,  see  8  I.  C.  C.  Rep.  304. 


36     FEDERAL  REGULATION  OF  RAILWAY  RATES 

entirely  excluded  from  any  share  in  the  export  flour  trade. 
Not  only  did  the  milling  industry  of  that  section  suffer, 
but  also  the  resources  of  the  country  were  weakened. 
Experts  have  declared  that  a  most  important  factor  in 
maintaining  the  fertility  of  the  soil  is  the  consumption 
of  the  by-products  of  the  grain  near  the  point  of  produc- 
tion. But  if  the  wheat  is  exported  instead  of  being  ground 
in  the  Northwest,  such  products  as  the  bran  and  the  shorts 
are  consumed  in  Europe  instead  of  in  this  country  as  they 
would  be  if  the  wheat  were  ground  at  home. 

If  space  permitted,  many  other  instances  of  unjustifiable 
discrimination  between  grain  and  grain  products  might 
be  given. ^ 

Other  cases  of  unjust  discrimination  between  com- 
peting classes  of  commodities  have  been  of  frequent  occur- 
rence. Thus  two  kinds  of  soap,  though  substantially  simi- 
lar in  price,  bulk,  and  value,  were  carried  at  different  rates. ^ 
In  another  case,  common  soap  was  carried  at  33  cents  per 
100  lbs.,  while  73  cents  was  charged  for  pearline,  a  compet- 
itor of  soap.^ 

Furthermore,  Federal  regulation  is  necessary  to  correct 
and  prevent  sporadic  cases  of  extortionate  rates.  Wher- 
ever an  industry  has  already  been  developed  to  its  full 
capacity  and  enjoys  large  profits,  owing  to  some  special 
advantage  which  it  possesses,  there  is  nothing  to  prevent 
the  railroad  from  demanding  extortionate  rates  for  the 
transportation  of  its  product.  In  other  words,  the  rail- 
roads, if  unchecked  by  competition,  are  in  a  position  to 
absorb  the  whole  of  what  is  termed  economic  rent,  whether 
it  be  of  location  or  of  especial  natural  or  acquired  ad- 
vantages. 

1  Board  of  Railroad  Commissioners  of  Kansas  vs.  A.  T.  &  S.  F.  Ry. 
Co.,  8  I.e.  C.  Rep.  304.  Hearings  of  the  Interstate  Commerce  Commission 
before  the  Senate  Committee,  testimony  of  Commissioner  Prouty,  p.  7. 

2  Beaver  &  Co.  vs.   Pittsb.  Cinn.  &  St.  L.  Rv.,  4  I.  C.  C.  Rep.  733. 

3  James  Pyles  &  Sons  vs.  East  Tenn.  Va.  &  Ga.  Ry.  Co.,  1  I.  C.  C. 
Rep.  465.  Other  cases  of  such  discrimination  will  be  taken  up  later. 
See  Oil  case,  p.  174;  also  Window  Shades  case,  p.  171. 


FEDERAL  CONTROL  IS  NECESSARY  37 

It  is  extremely  diflBcult  to  determine  what  is  an  ex- 
tortionate rate.  It  is  quite  generally  held  that  rates  should 
bear  a  reasonable  relation  to  the  cost  of  service.  But  in 
any  given  case,  it  is  altogether  impossible  to  determine 
even  with  approximate  accuracy  the  absolute  amount  of 
this  cost  of  service.  Even  if  it  were  possible  to  do  this,  it 
would  not  be  easy  to  determine  what  proportion  the  rate 
ought  to  bear  to  the  cost  of  service  in  any  given  instance. 
The  question  of  whether  a  given  rate  is  extortionate  or  not 
can  only  be  determined  upon  broad  grounds.  Not  only 
must  the  cost  of  service  be  taken  into  consideration,  but 
the  price  of  the  commodity,  the  relative  rates  under  similar 
conditions  upon  other  lines,  the  possibility  of  the  increase 
of  traffic  at  a  lower  rate,  the  direction  of  the  movement  of 
empty  cars,  the  density  of  the  traffic  upon  the  railroad,  the 
earnings  of  the  company,  and  every  other  circumstance 
which  surrounds  the  traffic  and  is  ordinarily  taken  into 
consideration  in  rate-making. 

There  is  no  distinct  line  of  demarkation  between  what 
is  a  reasonable  and  what  is  an  unreasonable  rate.  Every 
complaint  must  be  decided  upon  its  merits.  It  is  neces- 
sary', therefore,  that  the  body  which  has  the  power  of  de- 
termining such  questions  should  be  composed  of  men  of 
absolute  integrity,  entirely  free  from  all  interested  motives, 
and  amenable  as  little  as  possible  to  political  and  sectional 
influence.  There  are  certain  reasons  why  the  present 
Interstate  Commerce  Commission  has  been  unable  to 
attain  this  desired  standard.  These  will  be  taken  up  in 
another  connection. 

It  has  been  denied  that  ca.ses  of  extortionate  rates 
have  been  of  sufficiently  frequent  occurrence  to  be  worthy 
of  any  serious  consideration,  but  it  may  well  be  doubted 
whether  the  present  popular  ferment  against  the  railroads 
could  have  arisen  without  some  substantial  grounds.  The 
voTy  fact  that  more  than  two  thousand  cases  have  come 
before  the  Commission,  where  the  railroads  themselves 


38     FEDERAL  REGULATION  OF  RAILWAY  RATES 

have  practically  admitted  the  injustice  of  the  rates  com- 
plained of  by  changing  them  in  accordance  with  the  peti- 
tion of  the  complainant  rather  than  stand  trial,  goes  to 
show  that  most  of  these  cases  were  such  as  ought  to  have 
been  remedied.  It  cannot  be  inferred,  however,  that  the 
railroads  always  remedy  instances  of  injustice  as  soon  as 
their  attention  is  called  to  them.  Cases  frequently  arise 
where  stronger  and  more  effective  means  are  necessary 
in  order  to  insure  obedience  to  the  law.  Space  will  permit 
us  to  cite  only  a  few  such  instances. 

In  one  case  the  railroad  made  the  rate  on  coal  so  high 
that  independent  operators  were  forced  either  to  suspend 
or  to  continue  in  business  at  a  loss.^  In  another  case  the 
rate  on  coal  was  nearly  25  per  cent  higher  than  the  average 
rate  upon  all  other  kinds  of  traffic,  though,  according  to 
the  official  reports  of  the  company,  the  expense  of  hand- 
ling the  coal  was  much  less  than  that  of  other  kinds  of 
traffic.^  The  reason  for  the  existence  of  these  anomalies 
was  that  in  each  case  the  railroad  company  itself  owned 
and  operated  mines  in  the  immediate  vicinity  of  inde- 
pendent operators,  and  it  wished  to  crush  competition, 
so  that  in  the  end  it  might  buy  up  the  property  of  the 
rival  producers  at  practically  its  own  figure.  In  the  mean 
time,  the  railroad  itself  would  lose  nothing,  the  amount 
of  the  rate  upon  the  coal  produced  by  itself  or  by  its  sub- 
sidiary companies  being  a  matter  of  complete  indifference 
to  it. 

Only  by  some  adequate  system  of  government  control 
of  rates  may  the  industries  of  this  country  be  protected 
from  the  danger  of  complete  domination  by  the  railroads. 
At  any  time  they  see  fit  to  engage  in  an  industrial  enter- 
prise, they  may  easily  protect  themselves  from  competi- 
tion by  putting  the  rates  high  enough  to  force  out  the 
independent  producers.    It  has  been  seen  how  they  have 

»  James  C.  McGrew  vs.  Missouri  Pac.  Ry.  Co.,  8  I.  C.  C.  Rep.  630. 
»  Coxe  Brothers  vs.  The  Lehigh  Valley  R.  R.  Co.,  4 1.  C.  C.  Rep.  535. 


FEDERAL  CONTROL  IS  NECESSARY  89 

in  this  way  secured  a  practical  monopoly  of  the  great 
deposits  of  anthracite  coal.  One  industry  after  the  other 
might  be  thus  similarly  acquired  till  individual  enter- 
prise would  be  almost  wholly  lost,  and  the  consumers  of 
many  of  the  necessaries  of  life  would  be  practically  at 
the  mercy  of  various  large  corporations  owning  both  the 
sources  of  supply  and  the  means  of  access  to  them. 

It  has  i)een  suggested  that  such  a  danger  may  be  averted 
by  forbidding  railroads  to  acquire  industrial  stocks,  and 
a  recent  decision  in  Pennsylvania  (the  Chesapeake  &  Ohio 
Coal  case,  200  U.  S.  361)  would  seem  to  indicate  that 
a  railroad  itself  may  not  engage  directly  in  the  business  of 
mining  and  selling  coal.  Such  limitations  might  be  effect 
ive  as  far  as  the  corporation  itself  is  concerned,  but  there 
is  no  law  which  could  be  devised  which  would  effectively 
prevent  railway  managers  and  owners  from  individually 
acquiring  such  stocks,  which  to  all  intents  and  purposes 
would  amount  to  the  same  thing  as  ownership  by  the 
railroad  itself.* 

»  The  Hepburn  Act,  as  it  finally  became  a  law,  attempts  to  prevent 
railroad  ownership  of  industrial  enterprises  by  making  it  unlawful  for  the 
railroad  to  transport  the  products  of  any  industry  in  which  it  possesses 
an  interest,  direct  or  indirect.    The  section  referred  to  is  as  follows: 

"From,  and  after  May  1,  1908,  it  shall  be  imlawful  for  any  railroad 
company  to  transport  from  any  State,  Territory,  or  District  of  Columbia 
to  any  other  State,  Territory,  or  District  of  Columbia,  or  to  any  foreign 
country,  any  article  or  commodity,  other  than  timlxsr  and  the  manu- 
factured products  thereof,  manufactured,  mined,  or  produced  by  it,  or 
under  its  authority,  or  which  it  may  own  in  whole,  or  m  part,  or  in  which 
it  may  have  any  interest,  direct  or  indirect,  except  such  articles  or  com- 
modities as  may  be  necessary  and  intended  for  its  use  in  the  conduct  of 
its  business  as  a  common  carrier." 

A  grave  ([uestion  at  once  arises  as  to  the  constitutionality'  of  a  pro- 
vision of  this  character.  Furthermore,  it  is  extremely  doubtful  whether 
it  will  accomplish  the  purpo.se  for  which  it  is  intended,  even  if  it  is  upheld 
by  the  courts.  To  l)e  sure  it  will  probably  prevent  the  direct  ownership 
of  industrial  and  mining  enterprises  by  the  railroads  themselves,  but  it  is 
doubtful  if  it  will  have  any  effect  upon  the  holdings  of  industrial  securities 
by  railroad  stockholders.  The  railroad  itself  as  a  corixiration  cannot 
be  regarded  as  possessing  any  interest,  direct  or  indirect,  in  an  industry, 
simply  because  the  owners  of  some  of  its  shares  may  be  also  the  owners 
of  a  considerable  portion  of  the  shares  of  some  industrial  cor por.it ion. 
To  be  sure  the  railroad  policy  might  be  dictated  to  suit  the  interests  of 


40     FEDERAL  REGULATION  OF  RAILWAY  RATES 

An  instance  of  what  appeared  to  be  extortionate  rates 
occurred  a  few  years  ago  in  the  West.  Though  the  rates 
on  flour  and  grain  in  other  parts  of  the  country  seldom 
average  more  than  three  fourths  of  a  cent  per  ton-mile, 
rates  several  times  as  high  were  in  force  for  some  time 
from  Kansas  to  Texas  points,  being  in  many  instances  as 
high  as  four  cents  per  ton -mile.  ^  When  these  rates  were 
complained  of,  the  railroads  were  unable  to  give  satis- 
factory reasons  for  this  apparent  anomaly. 

Again  when  Mr.  James  J.  Hill  was  being  examined 
before  the  Senate  Committee,  he  pointed  out  that  the  rate 
on  engines  was  lower  over  his  lines  from  Philadelphia  to 
Japan  than  it  was  over  other  roads  for  distances  of  less 
than  five  hundred  miles.  Upon  being  asked  if  he  consid- 
ered the  latter  rates  excessive,  he  answered  that  he  con- 
sidered that  they  were  at  least  twice  as  high  as  they  ought 
to  be.^* 

In  another  instance,  we  find  a  railroad  charging  a 
through  passenger  rate  of  ten  cents  per  mile,  though  its 
net  earnings  were  already  excessive.^ 

Notwithstanding  the  large  number  of  instances  simi- 
lar to  those  which  have  just  been  cited, it  must  be  admitted 

some  of  its  larger  shareholders.  In  fact,  since  the  passage  of  this  law,  the 
railroads  have  been  rapidly  disposing  of  their  industrial  stock  to  new- 
corporations  composed  almost  entirely  of  their  own  principal  stock- 
holders. It  is  extremely  doubtful  whether  the  Federal  Goverrmient 
would  have  the  constitutional  authority  to  do  more  in  such  a  case  than 
to  insist  that  the  rates  charged  by  the  railroad  should  be  reasonable,  and 
that  it  should  give  impartial  service  to  all  applicants. 

The  exception  which  is  made  for  timber  was  probably  for  the  protection 
of  a  few  short  lines  in  the  timber  districts,  practically  the  whole  of  whose 
business  consists  in  transporting  the  timber  which  is  the  product  of  their 
own  sawmills.  At  any  rate  the  railroads  cannot  complain  that  they 
have  not  been  given  plenty  of  time  to  dispose  of  their  industrial  stock 
and  arrange  their  affairs  in  such  a  way  as  not  to  come  into  conflict  with 
this  provision. 

1  In  the  matter  of  alleged  excessive  rates  on  food  products,  see  4 
I.  C.  C.  Rep.  48. 

^  Hearings  of  the  members  of  the  Interstate  Commerce  Commission 
before  the  Senate  Committee  (1905),  statement  of  J.  C.  Clements,  p.  73. 

^  Board  of  R.  R.  and  Warehouse  Commissioners  of  the  State  of  Mo. 
vs.  The  Eureka  Springs  Ry.  Co.,  7  I.  C.  C.  Rep.  55. 


FEDERAL  CONTROL  IS  NECESSARY  41 

that  cases  of  extortionate  rates  are,  perhaps,  the  least 
frequent  of  all  tlie  abuses  of  our  present  railway  system. 
Up  to  the  present  time  the  railroads  have  been  held  pretty 
tlioroughly  in  check  by  competition,  and  by  the  automatic 
limitations  which  result  from  their  desire  to  develop  the 
lart^est  amount  of  traffic  possible. 

The  restraining  influence  of  competition  is  felt  in  a  much 
wider  field  than  merely  that  of  parallel  lines.  In  the  first 
place,  there  is  the  competition  of  international  markets. 
It  is,  therefore,  to  the  interests  of  the  railways  of  tliis 
country  that  they  should  make  the  rates  on  grain  and  other 
exportable  materials  low  enough  to  enable  the  American 
farmers  to  compete  with  the  producers  of  similar  material  in 
such  countries  as  Argentine,  Australia,  or  Eastern  Russia. 
If  the  rates  on  such  commodities  should  be  permanently 
maintained  at  too  high  a  level,  the  railways  would  lose  a 
considerable  portion  of  their  trafl5c,  which  would  probably 
result  in  a  curtailment  of  their  net  revenue.  Those  rail- 
roads, therefore,  which  tap  the  wheat-producing  regions 
of  the  Northwest  as  truly  compete  with  the  steamship 
lines  to  Argentine  and  Australia  as  they  compete  with 
one  another.  In  the  former  case,  however,  the  competition 
is  of  a  broader  and  more  permanent  kind,  and  there  is 
little  probability  of  its  elimination. 

Secondly,  there  is  the  competition  of  markets  and  of 
producing  areas  within  the  United  States  itself.  The  rail- 
roads leading  to  tlie  wheat-fields  of  the  Northwest  com- 
pete with  those  which  tap  the  winter-wheat  sections  of 
Kansas  and  Nebraska.  If  a  reduction  in  the  rates  from 
either  district  is  not  met  by  a  corresponding  reduction  in 
the  rates  from  the  other,  the  development  of  the  resources 
of  tlie  latter  district  would  be  greatly  hindered,  and 
hence  the  amount  of  traffic  of  tlie  railroads  serving  it 
would  fail  to  increase  as  rapidly  as  would  otlicrwise 
be  tlie  case.  Additional  increments  of  capital  and  labor 
would  flow  to  the  more  favored  locality,  and  Uie  equilib- 


42     FEDERAL  REGULATION  OF  RAILWAY  RATES 

rium  could  be  reestablished  only  when  the  most  avail- 
able resources  of  one  section  should  be  exhausted,  or 
when  the  old  differentials  in  rates  should  be  restored. 
Thus  at  whatever  point  an  industry  may  be  located,  the 
railroads  at  that  point  compete  with  all  the  railroads 
throughout  the  United  States  which  serve  localities  where 
similar  industries,  capable  of  supplying  the  same  markets, 
are  situated.  Neither  is  there  any  immediate  prospect  that 
such  competition  will  be  eliminated.  At  any  rate,  it  will 
exist  till  all  the  railroads  and  water  routes  combine  into 
one  gigantic  monopoly. 

It  is  not  at  all  likely  that  the  present  generation  will 
witness  such  an  outcome.^  The  people  would  never  sub- 
mit to  it.  Such  action  by  the  railroads  would  invite  gov- 
ernment ownership,  which  would  inevitably  follow.  Fur- 
thermore, such  a  combination  would  be  extremely  diflBcult 
under  our  laws  as  they  now  stand.  Pooling  is  prohibited 
by  the  Interstate  Commerce  Act,  and  it  has  been  held  that 
illegal  pooling  consists  of  all  agreements  of  whatever 
character  which  are  made  in  restraint  of  competition.^ 
The  Sherman  Anti-Trust  Act  forbids  all  combinations, 
of  whatever  nature,  which  in  effect  are  a  restraint  upon 
interstate  commerce,  and  provides  severe  punishment  for 
any  attempt  to  monopolize  interstate  commerce  or  any 
portion  of  it.  The  latter  provision,  if  enforced,  would  no 
doubt  cover  cases  of  ordinary  purchase  where  the  intent 
was  to  secure  a  monopoly.  The  decision  in  the  Northern 
Securities  case  shows  how  literally  some  of  the  provisions 
of  this  Act  may  be  enforced. 

Again,  the  interests  of  the  railroads  themselves  check 
unlimited  combination.  After  a  certain  point  is  reached, 
a  railroad  system  becomes  so  large  that  its  economical 
management  as  a  unit  becomes  impossible.    Thus  many 

1  Just  as  this  is  going  to  press  the  tremendous  purchases  of  the  Union 
Pacific  interests  in  the  stock  of  the  Illinois  Central,  the  Chicago  and  Alton, 
and  other  lines,  are  exciting  universal  comment. 

*  The  Interstate  Commerce  Commission  vs.  A.  T.  &  S.  F.  Ry.  et 
al.  (132  Fed.  Rep.  829). 


FEDERAL  CONTROL  IS  NECESSARY  43 

of  our  large  systems  find  it  to  their  advantage  to  operate 
leasjed  and  purchased  Hnes  as  separate  systems.  The  amal- 
gamation of  three  great  railroads  by  the  formation  of  the 
Northern  Securities  Company  entailed  no  change  what- 
ever in  the  oj)erating  methods.  Thus  whatever  advantage 
was  to  be  secured  was  in  the  common  financial  manage- 
ment rather  than  in  those  savings  which  would  ordinarily 
attend  production  upon  a  large  scale.  Then,  too,  the  love 
of  power  and  the  personal  rivalries  of  our  great  railway 
magnates  would  tend  to  deter  them  from  subordinating 
tliemselves  in  any  great  railway  combination,  where  each 
of  these  hitherto  bitter  rivals  would  be  compelled  to  yield 
to  the  will  of  the  majority,  and  where  his  personality 
would  be  almost  wholly  lost. 

Finally,  there  is  the  competition  of  parallel  lines;  but  this 
kind  of  competition,  in  many  of  the  forms  in  which  it  has 
hitherto  exhibited  itself,  seems  to  be  rapidly  disappearing. 
In  the  very  nature  of  things,  two  different  rates  upon  the 
same  commodities,  at  the  same  time,  and  between  the  same 
points,  are  impossible.  A  railroad,  therefore,  has  nothing 
to  gain  by  a  reduction  in  its  published  rates,  for  in  such 
a  case  its  rivals  will  immediately  meet  the  reduction  by 
similar  cuts  in  their  rates,  so  that  the  relative  position  of 
the  first  road  would  not  be  improved,  though  the  absolute 
amount  of  the  earnings  of  all  the  roads  concerned  would 
probably  be  diminished,  owing  to  the  lower  scale  of  rates 
which  would  result.  It  is  therefore  absolutely  necessary  that 
tliese  roads  should  come  to  some  sort  of  an  understanding, 
and  that  they  should  mutually  endeavor  to  maintain  what- 
ever rates  may  be  agreed  upon.  It  is  now  only  in  ex- 
ceptional cases  that  competing  lines  break  away  from 
these  agreements  for  a  test  of  strengtli  in  a  rate-war. 
Yet  experience  has  shown  that  whenever  such  wars  have 
occurred,  some  of  the  reductions  effected  are  usually  per- 
manent, the  rates  agreed  upon  at  tlie  end  of  tlie  war  being 
generally  lower  tJian  those  which  prevailed  previously. 


44      FEDERAL  REGULATION  OF  RAILWAY  RATES 

Moreover,  wherever  there  are  many  competing  lines,  an 
advance  of  rates  is  extremely  difficult,  for  all  the  rival 
roads  are  not  apt  to  agree  upon  the  advisability  of  the 
advance,  and  if  one  road  refuses  to  accede  to  it,  the  others 
can  accomplish  nothing.  Likewise  the  managers  of  one 
road  might  believe  that  the  total  amount  of  traffic  would 
be  considerably  increased  by  a  reduction  in  the  rate,  and 
the  other  roads  would  be  compelled  to  follow  its  action, 
whether  they  wished  to  do  so  or  not. 

There  is,  however,  another  form  which  this  competition 
assumes  which  is  frequently  overlooked.  It  exhibits  itself 
in  the  reductions  which  result  from  private  contracts  with 
large  shippers.  Thus  in  the  recent  packing-house  products 
case,  already  referred  to,*  it  appeared  that  certain  large 
packers  of  Kansas  City  had  contracted  with  President 
Stickney  of  the  Great  Western  to  give  him  a  considerable 
portion  of  their  traffic  for  a  period  of  seven  years  pro- 
vided he  would  lead  out  in  making  a  certain  reduction  in 
the  rate  on  packing-house  products  which  they  desired. 
To  this  proposition  he  agreed,  and  when  the  reduction  was 
made,  the  other  roads  were  compelled  to  meet  it  in  order  to 
retain  any  portion  of  the  business  whatever.  There  is  no 
illegality  in  such  a  contract,  for  the  reduced  rate  was  open 
to  all  shippers.  The  Great  Western  was  well  repaid  for 
taking  the  initiative  in  the  reduction  by  a  large  increase 
in  its  proportion  of  the  competitive  business.  Competition 
of  this  character  will  continue  to  exist  as  long  as  parallel 
lines  are  owned  by  different  sets  of  stockholders. 

Still  it  must  be  admitted  that  railway  competition 
in  our  country  is  a  much  less  potent  factor  than  it  was 
ten  or  twenty  years  ago.  Nearly  three  fourths  of  the 
total  mileage  of  the  country  is  now  owned  or  controlled 
by  five  different  systems,  and  the  community  of  interest 
between  these  systems  is  in  many  cases  large.  More 
than  $2,000,000,000  of  railway  stock  is  now  owned  by 
»  See  p.  30. 


FEDERAL  CONTROL  IS  NECESSARY  45 

other  railways,  which  amount  constitutes  about  one  third 
of  the  total.'  Such  relations  as  exist  between  the  Union 
and  the  Southern  Pacific,  and  between  the  Great  North- 
ern and  the  Northern  Pacific,  practically  inhibit  compe- 
tition. That  large  sections  of  the  country  should  thus  be 
completely  dominated  by  a  single  railway  power,  may 
justly  be  viewed  with  some  alarm.  Competition  of 
markets  is  no  more  effective  than  competition  of  parallel 
lines  after  a  community  of  interest  has  been  established, 
if  all  the  roads  leading  to  the  competing  markets  are 
under  a  common  railway  influence.  It  is  necessarj', 
therefore,  that  the  public  should  provide  itself  with  some 
adecjuate  machinery  for  protecting  itself  from  the  abuse 
of  such  power.  If  such  abuse  should  occur  u])on  an  ex- 
tensive scale  without  the  employment  of  proper  means  to 
prevent  it,  it  is  probable  that  much  more  radical  and  dras- 
tic action  would  eventually  be  taken  by  the  public  which  in 
the  end  might  be  attended  with  most  undesirable  conse- 
quences. 

Federal  supervision  of  rates  is  also  necessary  to  pre- 
vent unjust  discrimination  between  carload  and  less  than 
carload  shipments.  It  has  always  been  recognized  that 
the  railroads  may  charge  less  for  carload  lots  in  pro- 
portion to  the  lower  cost  of  service.  Any  discrimination 
greater  than  this  amounts  to  a  direct  discrimination  against 
the  smaller  shipper. 

It  is  true  that  for  short  distances,  this  difference  in  the 
cost  of  service  may  be  ver>'  large,  amounting,  possibly, 
to  twenty-five  or  fifty  per  cent  of  the  rate.  But  for  longer 
distances,  under  the  system  which  the  railroads  now  em- 
ploy for  handling  such  traffic,  it  becomes  comparatively 
insignificant.  For  instance,  upon  shipments  to  the  Pacific 
Coast,  practically  tlie  only  difference  would  be  the  cost  of 
loading  and  unloading  the  cars,  and  Uie  separate  billing 
of  the  different  items,  which  upon  few  kinds  of  traflic  would 
'  Railway  stock,  exclusive  of  bonds. 


46     FEDERAL  REGULATION  OF  RAILWAY  RATES 

average  more  than  $5.00  per  car.  Yet  the  difference  In  rates 
frequently  amounts  to  from  $200  to  $400  per  car. 

I  am  informed  by  a  prominent  furniture  manufacturer 
of  Chicago,  that  the  rates  on  baby  carriages  to  points  in 
Montana  and  Wyoming,  in  less  than  carload  lots,  are,  for 
commercial  purposes,  absolutely  prohibitive,  being  two 
or  three  times  as  high  as  the  rates  which  are  made  on 
carload  lots.  Furthermore,  the  railroads  have  steadily 
refused  to  allow  baby  carriages  to  be  loaded  in  with  car- 
loads of  furniture.  The  result  is  that  the  ordinary^  dealer 
who  might  easily  handle  several  carloads  of  furniture  in  a 
single  season,  is  practically  prohibited  from  handling  baby 
carriages,  unless  he  can  buy  them  in  carload  quantities. 
As  a  matter  of  fact,  there  are  few  if  any  cities  throughout 
this  whole  section  in  which  more  than  a  single  dealer 
could  handle  that  many  baby  carriages  in  one  season. 
The  result  is,  therefore,  that  the  whole  of  this  business 
throughout  that  section  is  concentrated  in  very  few  hands, 
and  the  ordinary  dealer  is  excluded  from  participating 
in  it. 

In  justice  to  the  railroads,  however,  it  must  be  admitted 
that  many  of  the  discriminations,  such  as  those  just  cited, 
are  the  result  of  carrying  out  the  principle  of  charging 
what  the  traffic  will  bear.  In  this  way  the  railroad  is  able 
to  secure  a  high  rate  upon  the  many  private  shipments 
of  single  items,  while  allowing  a  comparatively  low  rate 
upon  shipments  which  are  purely  commercial,  and  for  the 
existence  of  which  a  low  rate  is  absolutely  essential.  There- 
fore, it  is  not  in  the  interests  of  the  railroads  themselves, 
to  correct  discriminations  of  this  character,  and  it  would 
seem  that  there  should  be  some  means  by  which  equal 
treatment  may  be  secured  for  the  small  shippers,  wherever 
the  revenue  of  the  railroads  will  allow.  ^ 

1  In  the  case  of  Frank  G.  Clark  Company  vs.  The  New  York,  New 
Haven  and  Hartford  Railroad  Company  (11  I.  C.  C.  Rep.  558),  a  situa- 
tion appeared  which  would  seem  to  indicate  that  the  Federal  Govern- 
ment should  have  some  means  of  requiring  railroads  to  promulgate 


FEDERAL  CONTROL  IS  NECESSARY  47 

Finally,  Federal  control  is  necessary  in  order  to  do 
away  with  tlie  evils  which  arise  in  connection  with  private 
car  lines  and  the  so-called  terminal  and  industrial  roads. 
The  chief  complaints  against  the  private  car  lines  are: 
(1)  unreasonable  icing  charges,  (2)  refusal  to  supply  the 
cars  impartially  to  all  shippers,  and  (3)  excessive  payments 
by  the  railroads  for  use  of  the  cars. 

Upon  the  whole,  it  must  be  admitted,  however,  that 
private  car-line  systems  are  beneficial  It  would  be  a  great 
economic  waste  for  the  railroads  to  purchase  refrigerator 
cars  in  sufficient  number  for  their  requirements  at  all 
seasons  of  the  year.  Under  the  present  system,  these  cars 
move  from  one  part  of  the  country  to  the  other,  in  ac- 
cordance with  the  demand  for  them,  which  changes  with 
the  season  of  the  year.  Thus  in  the  early  summer  they 
may  be  used  in  the  transportation  of  the  Florida  and 
Georgia  peach  and  berry  crops  to  Northern  cities.  A  little 
later  the  same  cars  may  be  used  in  marketing  the  ^lichigan 
fruit  crop,  and  in  the  fall  of  the  year  there  is  a  hea\y 
demand  for  these  cars  in  moving  California  oranges  and 
lemons  eastward.  The  superiority  of  such  a  system  over 
that  of  railroad  ownership  is  at  once  apparent.  Under  the 
latter  system,  cars  must  be  returned  to  the  railroad  owning 
them  as  soon  as  they  reach  their  destination  and  are 
unloaded,  and  the  time-limit  for  the  return  is  so  sJiort  that 

rcasonahle  tlirouii^h  rates  whenever  the  refusal  to  make  such  rates  results 
in  undue  prejudice  against  particular  ship[)crs. 

The  defendant  carrier  in  this  case  had  united  with  other  lines  in  pro- 
muIgatinjT  tiiri)u<:;h  rates  from  Ohio  River  territorv  to  New  England 
points  uiKHi  all  tradic  otiier  than  j)etroleum.  I'lHin  t)ie  latter  commtxiity 
it  exacted  the  whole  of  its  local  charge  from  the  junction  |X)ints  of  the 
connecting  carrier.  The  result  was  that  the  through  rate  upon  petroleum 
was  unreasonably  excessive,  and  the  independent  refiners  who  had  to 
comjiete  with  the  Standard  Oil  Com|wny  which  owned  pi|)e  lines  into 
the  New  England  territory,  were  put  to  a  great  disiidvantage.  Neverthe- 
less, it  was  held  tliat  under  the  existii^g  law,  the  Commission  had  no 
power  to  grant  relief. 

This  defect  in  the  law  is  covered  hy  the  Hepburn  Act,  which  gives  the 
Commission  the  jxiwer  to  promulgate  reasonable  joint  rates,  and  to 
apportion  the  same  among  the  connecting  carriers,  whenever  the  latter 
shall  fail  to  agree  as  to  their  respective  shares. 


48     FEDERAL  REGULATION  OF  RAILWAY  RATES 

frequently  a  return  load  cannot  be  secured.  Consequently 
the  supply  of  railroad  owned  refrigerator  cars  is  not 
elastic  enough  to  meet  extraordinary  and  exceptional 
demands,  and  disastrous  car  famines  have  been  of  fre- 
quent occurrence.  In  the  case  of  perishable  traffic,  such  as 
fruits  and  meats,  it  is  extremely  important  that  the  whole 
car  supply  of  the  country  may  be  drawn  upon  in  order  to 
meet  unusual  demands.  It  is  to  meet  this  economic  need 
that  the  present  private  car-line  systems  have  been  de- 
veloped. 

With  regard  to  the  icing  charges,  it  seems  that  many  of 
the  complaints  against  the  private  car  lines  are  well 
founded.  In  spite  of  the  able  defense  which  Mr.  Armour 
has  recently  made  for  this  system,  it  still  remains  true  that 
these  charges  are,  in  many  cases,  two  or  three  times  the 
cost  of  service,  and  that  they  have  advanced  from  100  per 
cent  to  300  per  cent  in  the  last  eight  or  ten  years.  When 
the  Pere  Marquette  gave  an  exclusive  contract  for  icing  its 
cars  to  the  Armour  Company,  the  charges  for  icing  were 
immediately  advanced  from  100  to  150  per  cent  over  those 
which  had  prevailed  when  the  railroad  company  itself 
performed  this  service.*  Other  similar  instances  might 
be  given,  but  this  subject  has  attracted  such  wide  attention 
of  late  that  many  of  them  are  a  matter  of  common  know- 
ledge. That  which  especially  serves  to  vitiate  the  system  is 
that  most  of  the  refrigerator  companies  possessing  these 
exclusive  contracts  are  themselves  large  shippers  of  fresh 
meats  and  fruits.  Accordingly  an  unreasonable  charge 
for  the  necessary  icing  services  acts  in  the  same  way  as 
a  direct  rebate  to  them,  since  it  is  a  matter  of  complete 
indifference  to  them  what  charges  they  pay  to  themselves 
upon  their  own  shipments,  while  a  high  rate  for  this 
service  tends  to  give  them  a  peculiar  advantage  over  their 
competitors. 

*  In  the  matter  of  charges  for  the  transportation  and  refrigeration 
of  fruit,  etc.,  see  10  I.  C.  C.  Rep.  360. 


FEDERAL  CONTROL  IS  NECESSARY  49 

The  remedy  for  this  evil  will  be  taken  up  in  another 
connection.'  It  is  sufficient  to  remark  here  that  the  private 
car  lines,  as  far  as  possible,  should  be  brought  under  the 
operation  of  the  Interstate  Commerce  Act.  Then,  too,  the 
railroad  companies  should  themselves  be  made  jointly 
responsible  for  these  charges.  If  the  icing  charges  cannot 
under  the  present  law  be  termed  a  part  of  the  rate  for 
which  the  railways  are  responsible,  we  should  have  legis- 
lation making  them  so.  Furthermore,  wherever  the  icing 
services  are  performed  by  a  private  company,  the  charges 
for  those  services  should  be  considered  as  a  separate  item 
from  Uie  remainder  of  the  through  rate.  According  to 
the  decision  of  the  Supreme  Court  in  the  case  of  the  Chicago 
Terminal  Charge,^  it  would  seem  that  a  special  provision 
in  the  law,  authorizing  such  separate  consideration,  would 
be  necessary.  In  case  such  provision  should  be  made,  the 
only  further  requisite  would  be  that  the  public  should 
have  more  adequate  control  over  rates. ^ 

>  See  page  146  ff.  In  the  case  of  Interstate  Commerce  Commission  vs. 
Reichman  (145  Fed.  Rep.  235),  decided  in  February,  1906,  it  was  held 
that  the  private  car  hnes  were  themselves  interstate  Ciirricrs,  and  were 
subject  to  regulation  as  to  the  reasonableness  of  their  charges. 

2  186  U.  S.  320. 

'  This  point  is  covered  fairly  well  by  the  Hepburn  Act  as  it  was 
finally  passed.  The  railroads  are  now  required  to  publish  sejiarately 
icing  charges  and  are  clearly  resix)nsib!e  for  them.  If  a  reduction  is 
desired  the  process  is  exactly  similar  to  that  which  will  be  followed  in  the 
case  of  extortionate  or  unjustly  discriminatory  rates.  This  provision  ia 
itself  would  not  be  sufficient,  for  the  railroads  could  pay  the  icing  com- 
panies large  amounts  for  icing,  while  at  the  same  time  the  charges  to  the 
public  might  be  reasonable.  This  would  act  as  an  indirect  rebate  to  the 
icing  corajjanies  which  are  themselves  large  shipfx-rs.  Fortunately  this 
point  is  covered  by  another  provision  of  the  Act  (section  4),  which  is  to 
the  effect  that  whenever  any  .service  is  rendered  in  connection  with  trans- 
portation by  the  owner  of  the  commodity  tnmsiHirted,  the  charges  for 
the  sjune  shall  be  no  more  than  is  just  and  reasonable,  and  the  Commis- 
sion is  given  power  to  reduce  the  .s;ime,  as  in  the  case  of  extortionate 
rates.  It  is  possible,  however,  that  this  provision  would  not  cover  a  case 
where  the  icing  service  was  performed  by  a  refrigerator  com|>any  which 
had  no  other  business.  Hut  if  the  owners  of  the  stock  of  such  a  corpora- 
tion were  also  owniers  of  large  (juantitics  of  the  stock  of  coinp;\nies  en- 
gaged in  the  business  of  shipping  fruit  or  other  jierishable  ci>mnu)dities, 
the  ver}'  evil  which  is  .«ouglit  to  Ik?  avoided  would  be  met  with.  It  seems 
that  nothing  short  of  a  provision  to  the  effect  that  charges  for  all  service 


50     FEDERAL  REGULATION  OF  RAILWAY  RATES 

With  regard  to  the  charge  that  the  railroads  give  the  car 
owners  preference  in  case  of  any  car  shortage,  it  may  be 
said  that  such  action  is  clearly  illegal,  both  under  the 
Interstate  Commerce  Act,  and  under  the  Elkins  Amend- 
ment of  1903.  That  which  is  needed,  therefore,  is  a  more 
adequate  and  expeditious  means  of  enforcing  these  laws, 
rather  than  a  radical  change  in  the  law  itself.  As  the 
Commission  has  frequently  held,  it  is  the  duty  of  the 
railways,  in  such  a  case,  to  apportion  their  cars  among 
the  various  shippers  in  proportion  to  the  amount  of  busi- 
ness offered  by  each.  The  owners  of  the  cars  have  no 
right  to  priority.  Wherever  a  shipper  has  been  discrimi- 
nated against  in  this  way,  he  should  be  allowed  to  recover 
to  the  full  extent  of  the  loss  which  he  has  incurred,  owing 
to  the  refusal  of  the  railroad  to  grant  impartial  service 
to  all  shippers. 

The  complaint  that  the  railroads  allow  the  car  lines  an 
unreasonable  amount  in  payments  for  the  use  of  the  cars 
is  not  so  well  founded.  The  mileage  rates  seldom  average 
over  three  fourths  of  a  cent  per  mile  each  way.  Still  it 
must  be  admitted  that  even  this  moderate  charge  fre- 
quently admits  of  an  exorbitant  profit,  often  as  high  as 
forty  per  cent  annually  upon  the  investment.  If  the  car 
owners  themselves  were  not  also  large  shippers,  probably 
no  one  would  complain.  But  as  it  is,  the  payment  of  an 
unreasonable  mileage  for  the  use  of  the  cars  acts  as  an 
indirect  rebate  to  the  car  owners,  and  enables  them  to 
make  prices  which  will  crush  competition.  There  is  no 
doubt  but  that  a  clear  case  of  unreasonable  mileage  would 
be  covered  by  the  Elkins  Law,  if  that  act  were  properly 
enforced.  Not  only  does  it  provide  severe  penalties  for  all 
forms  of  direct  rebates  and  discriminations,  but  also  for- 
bids all  indirect  discriminations,  defining  them  as  follows : 

rendered  in  connection  with  transportation  shall  be  reasonable  and  just 
both  to  the  carrier  and  to  the  shipper,  and  upon  complaint,  subject  to 
reduction  by  the  Commission,  would  accomplish  the  results  which  are 
desired. 


FEDERAL  CONTROL  IS  NECESSARY  51 

"WTiereby  any  such  property  shall  by  any  device  whatever 
be  tran.sj)orte(]  at  a  less  rate  than  that  named  in  the  tariffs, 
.  .  .  or  whereby  any  other  advantage  is  given  or  discrimi- 
nation is  practiced."  If  this  provision  were  enforced,  such 
abuses  could  be  promptly  remedied,  and  the  car  ovviiers 
could  be  compelled  to  accept  a  reasonable  payment  for  the 
use  of  their  cars. 

In  connection  with  the  so-called  terminal  and  indus- 
trial roads,  abuses  even  more  flagrant  arise.  Instances 
of  such  abuse  have  received  such  wide  notoriety  of  late 
that  they  need  detain  us  here  but  a  moment. 

The  International  Harvester  Company  owns  all  of  the 
stock  of  what  is  known  as  the  Illinois  and  Northern  Rail- 
road. This  road  was  chartered  and  organized  as  a  sep- 
arate company  in  1901.  It  consists  of  some  seventeen 
miles  of  track  within  the  limits  of  the  works  of  the  Inter- 
national Harvester  Company  at  Chicago,  near  26th  Street, 
about  five  miles  of  main  track  between  26th  and  49th 
Streets,  and  trackage  rights  over  the  Santa  Fe  for  about 
five  miles  more.  In  this  way  it  makes  connection  with 
most  of  the  roads  centring  in  Chicago.  Previous  to 
January  1,  1904,  cars  had  always  been  delivered  from  the 
works  of  the  company  to  the  various  railroads,  by  inde- 
pendent belt  lines,  and  by  this  new  railway  company  at 
charges  ranging  from  $1.00  to  $3.50  per  car.  At  that  time, 
however,  the  Northern  Illinois  Railroad  securetl  a  division 
of  the  through  rate  by  which  it  obtained  twenty  per  cent 
of  the  rate  to  the  Missouri  River.  The  rate  on  farm  ma- 
chinery to  the  Missouri  River  is  $60.00  per  car,  of  which 
the  Northern  Illinois  Railroad  thus  receives  $12.00,  in 
this  way  increasing  its  share  by  more  than  four  hundred 
per  cent.  A  reasonable  charge  for  this  switching  service 
would  not  exceed  $3.00  per  car,  and  the  balance  of  $9.00 
per  car  practically  amounts  to  a  direct  rebate  to  the  Inter- 
national Harvester  Company.^ 

^  In  the  matter  of  divisions  of  joint  rates  and  other  allowances  to 
terminal  railroads,  see  10  I.  C.  C.  llep.  385. 


62     FEDERAL  REGULATION  OF  RAILWAY  RATES 

A  similar  case  is  that  of  the  Chicago,  Lake  Shore  and 
Eastern  Railway,  whose  stock  is  owned  by  the  Illinois 
Steel  Company.  It  comprises  some  seventy-five  miles  of 
private  trackage  within  the  various  works  of  the  company, 
and  less  than  ten  miles  outside  these  works.  Since  1897^ 
this  company  has  received  a  division  of  the  through  rate 
amounting  to  twenty  per  cent  of  the  rate  to  the  Missouri 
River,  fifteen  per  cent  of  the  rate  to  Pittsburg,  and  ten 
per  cent  of  the  rate  to  the  seaboard.  Upon  coke  from  the 
Connellsville  region  it  receives  a  division  amounting  to 
seventy  cents  per  ton,  which  yields  the  company  a  profit 
of  nearly  $1000  per  trainload  for  the  haul  from  Indiana 
Harbor  to  South  Chicago,  a  distance  of  only  seven  miles. ^ 

The  Hutchinson  and  Arkansas  River  Railroad  Company, 
owned  by  the  Hutchinson  Salt  Trust,  is  a  similar  instance. 
This  company  owns  less  than  a  mile  of  siding,  and  no 
rolling-stock  or  equipment  whatever,  yet  it  receives  25  per 
cent  of  the  rate  to  the  Missouri  River.  ^ 

The  mere  citation  of  these  cases  is  sufficient  to  portray 
the  enormity  of  some  of  the  abuses  which  occur  in  con- 
nection with  the  system  of  terminal  railroads  owned  by 
industrial  corporations.  The  Commission  has  frequently 
declared  that  excessive  payments  to  such  terminal  roads 
are  unlawful  under  the  Elkins  Act,  which  forbids  every 
device  by  which  one  shipper  secures  any  undue  advantage 
over  others.  If  this  provision  should  be  found  inadequate, 
a  law  should  be  passed  whereby  some  public  tribunal 
should  have  the  power  of  apportioning  the  rate  between 
two  connecting  railroads,  wherever  it  appears  that  an 
unequal  apportionment  has  been  made  in  order  to  give 
some  undue  advantage  to  some  particular  shipper.' 

»  Vide  Note  1,  p.  51. 

2  Annual  Report  of  the  Interstate  Commerce  Commission,  1904,  p.  44. 

3  It  is  doubtful  whether  the  Hepburn  Act,  as  finally  passed,  fully 
covered  this  point.  The  provisions  which  bear  upon  it  are  as  follows : 

Section  1.  On  and  after  May  1,  1908,  common  carriers  are  forbidden 
to  transport  any  commodities  other  than  timber  which  they  may  have 


FEDERAL  CONTROL  IS  NECESSARY  53 

The  evil  of  direct  rebates  and  discrimination  between 
individuals  has  been,  perhaps,  the  most  flagrant  of  all 
the  abuses  which  arise  in  connection  with  our  present 
transportation  system.  Such  cases,  however,  are  fully 
provided  for  in  the  Elkins  Act,  and  in  the  Interstate  Com- 
merce Law.  If  a  Commission  were  given  the  power  to 
fix  rates,  the  solution  of  this  problem  would  be  in  no  wise 
facilitated.  Under  the  present  system,  rebates  are  un- 
lawful, and  punishable  with  severe  penalties.  For  this 
reason  they  are  necessarily  secret,  and  are  witliheld  upon 
any  danger  of  exposure.  Under  the  proposed  system  it 
would  be  just  as  easy  secretly  to  cut  under  a  Commission- 
produced  or  in  which  they  as  owners  may  possess  any  interest,  direct 
or  indirect,  except  such  commodities  as  may  be  intended  for  their  use  in 
the  conduct  of  their  business  as  common  carriers. 

This  provision  was  intended  to  be  a  fatal  blow  to  the  so-called  "in- 
dustrial roads."  But  it  may  be  doubted  whether  it  could  he  construed 
so  as  to  cover  a  case  where  the  road  in  (juestion  was  a  distinct  corjxtration, 
chartered  under  the  laws  of  a  state,  and  engaging  in  business  within  the 
state  as  a  common  carrier.  But  a  considerable  j)ortion  of  the  common 
stock  of  such  a  railroad  might  be  owned  by  those  in  control  of  large 
manufacturing  industries,  and  unetjual  apportionment  of  tiie  joint  tariff 
would  act  as  an  indirect  rebate  to  the  large  ship()ers.  Whatever  may 
have  l>een  the  intent  of  the  law,  the  constitutionality  of  any  provision 
which  would  forl)id  such  a  road  from  transjiorting  the  products  of  the 
manufacturing  establishment  might  ire  seriously  (juestioned.  Such  a  law 
would  virtually  amount  to  saying  that  a  man  who  is  the  owner  of  railway 
stock  may  not  at  the  same  time  i)e  an  owner  of  industrial  securities.  The 
power  to  enact  a  provision  of  this  character  could  certainly  not  be  among 
the  delegated  powers  of  the  Federal  Government. 

By  section  2,  common  carriers  are  reijuired  to  file  with  the  Commission 
all  contracts  and  agreements  with  other  carriers  relating  to  traffic  affected 
by  the  .Vet. 

If  this  i)ro\'ision  is  duly  enforced  it  will  at  least  prevent  such  cases 
from  escaping  the  notice  of  the  public.  Furthermore  this  section  re- 
enacts  the  provisions  of  the  Elkins  I^aw.  referred  to  in  the  te.\t  above, 
which  it  is  believed  effectively  cover  the  ca.se. 

By  section  4,  the  Commission  is  given  the  power  to  determine  the  re- 
spective shares  of  the  various  railroads  with  reference  to  a  joint  rate 
which  has  been  set  by  it  in  pursuance  of  its  delegated  powers,  concerning 
which  the  connecting  carriers  fail  to  agree.  It  does  not,  however,  give 
the  Commission  the  power  to  apix)rtion  the  joint  rate  where  the  con- 
necting carriers  reach  a  voluntary  agreement,  even  though  .such  an 
agreement  may  result  in  injustice.  This  power  of  apjxirtionment  should 
be  enlarged  t)y  special  legislation  to  cover  tl;e  cases  of  an  unequal 
division  of  the  joint  rate,  such  as  have  arisen  in  connection  with  the 
"so-called"  industrial  roads,  as  we  have  recommended  in  the  te.\t  above. 


54     FEDERAL  REGULATION  OF  RAILWAY  RATES 

made  rate  as  one  made  by  the  railroads  themselves.  But 
if  the  Commission  were  also  given  the  power  to  set  a 
minimum  rate,  the  probability  of  secret  concessions  would 
be  greatly  increased. 

The  testimony  of  those  who  are  in  the  best  position  to 
know  is  practically  unanimous  in  support  of  the  opinion 
that  the  Elkins  Law  of  1903  has  been  most  effective  in 
doing  away  with  this  class  of  evils. ^  Among  the  important 
changes  made  by  this  law  were  the  following : 

1.  It  makes  the  railway  corporation  itself  liable  to 
prosecution  in  all  cases  where  only  its  officers  and  agents 
were  liable  under  the  former  law. 

2.  Heavy  fines  are  now  substituted  for  imprisonment.' 
Previous  to  the  passage  of  this  law  the  punishment  was 
too  severe  to  be  enforced. 

3.  In  order  to  prove  that  an  unlawful  preferential  rate 
had  been  allowed,  it  was  formerly  necessary  to  establish 
the  fact  that  some  other  shipper  had  been  charged  a 
higher  rate  for  absolutely  similar  and  contemporaneous 

*  Annual  Report  of  the  Interstate  Commerce  Commission,  1903,  p.  10. 
Passage  quoted  p.  12  above. 

^  An  interesting  controversy  has  arisen  as  to  whether  the  penalty  of 
imprisonment  may  not  be  imposed  under  the  law.  While  it  is  admitted 
that  it  was  the  intention  of  the  Act  to  abolish  imprisonment  as  a  punish- 
ment for  giving  rebates,  it  is  contended  that  such  a  penalty  could  still  be 
imposed  by  indicting  the  offending  party  for  conspiracy  to  commit  an 
offense  against  the  United  States.  In  rendering  a  decision  upon  an  indict- 
ment of  this  kind  the  Circuit  Court  of  the  Southern  District  of  New  York 
expressed  itself  as  follows: 

"  In  my  opinion,  it  is  not  in  the  power  of  the  government,  by  calling 
the  same  acts  a  conspiracy,  to  indict  these  defendants  for  a  different 
crime,  and  thereby  subject  them  to  the  liability  of  imprisonment  for  acts 
for  which  such  punishment  was  expressly  abolished  by  the  Elkins  Act." 
(146  Fed.  Rep.  298.) 

In  the  case  of  Thomas  and  Ta^art  in  the  District  Court  for  the 
Western  District  of  Missouri,  the  court  took  a  directly  contrary  view,  and 
it  was  held  that  the  punishment  of  imprisonment  could  be  imposed  upon 
an  indictment  under  the  conspiracy  clause  of  Section  5440  of  the  Re- 
vised Statutes.    (145  Fed.  Rep.  74.) 

This  confusion  in  the  interpretation  of  the  law  will  be  eliminated  under 
the  new  rate  law  of  June,  1906,  by  which  the  punishment  of  imprison- 
ment is  reimposed  upon  both  the  agents  of  the  carrier  and  the  shipper 
convicted  of  giving  or  receiving  rebates. 


FEDERAL  CONTROL  IS  NECESSARY  55 

shipments,  a  thing  which,  in  most  cases,  it  was  very  diflS- 
cult  to  do.  Under  the  present  law,  it  is  only  necessary  to 
prove  that  some  shipper  has  been  charged  less  than  the 
published  rate,  which  is  comparatively  a  simple  matter. 

4.  A  more  important  change  resulted  from  the  provision 
which  confers  jurisdiction  upon  the  circuit  courts  to 
restrain  departures  from  the  published  rates,  or  any  dis- 
crimination forbidden  by  law,  by  writ  of  injunction,  or  by 
other  appropriate  process.  If  tliere  is  reasonable  ground 
to  believe  that  tariffs  have  been  disregarded,  any  circuit 
court  may  now  enjoin  the  offending  carrier  from  con- 
tinued violations  of  the  law,  and  it  may  punish  continued 
disobwlience  by  the  summar}-  process  of  contempt  of  court. 

Evidently  tliese  provisions  are  a  great  improvement 
over  the  old  law.  AYithin  two  months  after  the  Act  went 
into  effect,  the  circuit  courts  had  issued  injunctions  against 
more  than  tliirty  railroads. 

But  one  other  point  remains  to  be  considered  in  this 
connection.  In  the  President's  Message  to  Congress  of 
December,  1905,  he  advocated  a  rather  extraordinary 
policy,  which  has  since  received  considerable  support  in 
Congress  and  throughout  the  country.  It  is  that  as  soon 
as  it  has  been  proved  that  any  railroad  has  been  guilty 
of  giving  any  secret  rebates,  the  maximum  cliargc  which 
the  railroad  might  enforce  for  the  future  should  be  im- 
mediately set  by  the  Commission  at  tlie  lowest  rate  ac- 
corded the  most  favored  shipper.*  It  is  marvelous  Uiat 
such  a  policy  could  emanate  from  so  high  an  authority, 
and  receive  such  strong  support.  Rebates  will  never  be 
entirely  eliminatetl  any  more  than  robberies,  no  matter 
how  severe  may  be  the  penalties  which  are  placed  upon 
the  statute-books.  Suppose  some  over-zealous  traffic 
manager  at  Kansas  City  were  to  give  a  reliate  of  twenty- 
five  per  cent  on  a  shipment  of  grain  to  Chicago.    If  this 

*  This  provision  was  not  embodied  in  the  final  draft  of  tlie  Hepburn 
Act 


56     FEDERAL  REGULATION  OF  RAILWAY  RATES 

were  to  become  known,  the  railroad,  according  to  this 
plan,  would  be  required  to  carry  all  shipments  of  grain  to 
Chicago  at  a  similar  rate.  Not  only  that,  but  all  the  com- 
peting roads  would  be  compelled  to  meet  this  reduction, 
or  to  lose  their  proportion  of  the  traffic.  Then  the  roads 
leading  to  Galveston  and  New  Orleans  would  see  their 
traffic  being  taken  away  from  them  and  diverted  to  the 
Eastern  ports  by  reason  of  these  lower  rates  to  Chicago, 
and  they  would  be  compelled  to  make  similar  reductions 
in  order  to  protect  their  interests.  Furthermore,  all  the 
roads  at  Omaha,  and  at  every  other  point  competing  with 
Kansas  City,  would  also  be  compelled  to  make  similar 
reductions  or  lose  their  share  of  the  traffic.  In  short,  rates 
over  the  whole  country  would  be  afiFected.  It  is  quite  pos- 
sible that  a  permanent  reduction  of  twenty-five  per  cent 
in  the  grain  rates  would  practically  bankrupt  many  of 
these  Western  roads.  All  this  might  come  from  the  over- 
zeal  of  a  single  traffic  manager,  in  endeavoring  to  secure 
a  shipment  amounting,  perhaps,  to  only  a  few  carloads. 
Surely  it  would  be  better  to  mete  out  adequate  punishment 
to  the  offending  road  than  so  severely  to  punish  both 
innocent  and  guilty  alike. 


CHAPTER   III 

OBJECTIONS   TO   RATE-FIXING    BY   A    COMMISSION 

Having  shown  that  Federal  control  of  rates  is  necessary 
in  order  to  avoid  certain  evils  which  have  arisen  in  connec- 
tion with  our  transportation  system,  let  us  now  take  up 
the  general  objections  to  a  rigid  system  of  public  regula- 
tion, in  order  that  we  may  be  in  a  better  position  to  devise 
a  plan  whereby  many  of  the  evils,  alleged  to  be  inherent 
in  any  system  of  public  control,  may  be  avoided. 

The  difficulties  and  dangers  of  government  regulation 
have  already  been  so  thoroughly  set  forth  by  various 
writers,  among  whom  the  most  prominent,  perhaps,  is 
Professor  H.  R.  Meyer,  in  his  recent  work,  "Government 
Regulation  of  Railway  Rates,"  and  by  numerous  railway 
advocates  such  as  Mr.  H.  T.  Newcomb,  in  almost  count- 
less polemical  tracts  and  articles  promulgated  through 
the  public  press,  that  more  than  brief  mention  of  the 
various  points  would  lead  to  inexcusable  repetition. 
Moreover  some  of  these  objections  have  already  been  con- 
sidered in  the  preceding  chapter,  and  most  of  them  will 
reappear  in  connection  with  the  discussion  of  the  court 
decisions,  while  the  legal  objections  will  appear  in  the 
final  chapter  proposing  an  alternative  policy  to  that  of 
giving  the  Commission  the  power  to  fix  rates  at  its  dis- 
cretion in  all  cases  of  complaint.  Therefore,  those  points 
only  will  be  considered  which  we  do  not  believe  to  have 
received  sufiicient  notice  elsewhere. 

The  inference  has  been  frequently  drawn  that  once  the 
Commission  has  been  given  power  to  fix  rates,  all  intrinsic 
difficulties  of  the  problem  will  adjust  themselves.  No  such 
conclusion  is  warranted.  As  has  been  ably  pointed  out  by 


68     FEDERAL  REGULATION  OF  RAILWAY  RATES 

Professor  H.  R.  Meyer,  in  the  work  referred  to  above, 
wherever  government  regulation  has  been  tried,  the  difl5- 
culties  have  multipled  rather  than  diminished. 

First,  then,  among  the  objections  which  we  shall  con- 
sider is  the  utter  lack  of  an  adequate  standard  by  which 
the  reasonableness  of  a  given  rate  may  be  adjudged.  In 
all  the  agitation  which  has  been  going  on  for  rate-fixing 
by  a  Commission,  no  one  has  yet  volunteered  any  satis- 
factory information  as  to  what  principle  ought  to  guide 
that  Commission  in  the  performance  of  its  great  task. 

Suppose  a  specific  rate  were  complained  of  before  such 
a  Commission.  Obviously  that  body  would  be  compelled 
to  seek  for  some  standard  by  which  it  might  judge  of  the 
reasonableness  both  of  the  rate  complained  of  and  of  the 
rate  which  it  proposes  to  substitute  for  it. 

The  standard  which  has  hitherto  been  applied  in  almost 
every  case  which  has  come  before  the  Commission  has 
been  that  of  comparative  rates  either  upon  the  same  or 
upon  other  roads,  with  some  allowance  for  a  difference  in 
conditions.  Yet  there  are  scarcely  two  important  points 
in  the  whole  country  where  the  conditions  are  altogether 
similar.  In  the  first  place  a  great  difference  may  exist  in 
the  relative  costs  of  service.  For  instance,  wherever  the 
traffic  is  already  very  heav}%  additional  traffic  can  be 
carried  only  at  great  expense,  but  where  the  amount  of 
traffic  is  light,  and  cars  and  engines  stand  idle  for  a  con- 
siderable portion  of  the  time,  the  cost  of  carrj'ing  additional 
traffic  is  comparatively  trivial.  Secondly,  there  may  be  a 
considerable  difference  in  the  respective  forces  of  com- 
petition at  the  different  points.  Even  though  a  certain 
amount  of  competition  may  be  present  at  each  of  two 
points,  it  may  be  much  keener  in  the  one  case  than  in  the 
other. 

Finally,  there  may  be  a  vast  difference  in  the  relative 
possibilities  of  developing  traffic  at  the  two  points.  In 
such  a  case,  it  might  be  advantageous  for  the  road  to  make 


OBJECTIONS  TO  RATE-FIXING  59 

rates  to  one  point  so  low  that  for  the  time  being  they 
might  be  unpr<jfitable,  in  order  to  develop  traffic  for  the 
future,  while  in  the  other  case,  it  might  be  that  no  great 
amount  of  traffic  could  be  secured  whatever  rates  were 
charged  by  the  railroad. 

It  would  be  only  in  rare  and  exceptional  instances  that 
these  various  factors  would  be  of  equal  force  at  different 
points.  If  the  Commission,  therefore,  is  to  use  the  standard 
of  comparative  rates  for  the  purjDose  of  determining  the 
reasonal)leness  of  rates  complained  of,  and  if  it  is  to  pro- 
ceed with  any  degree  of  fairness,  it  will  be  necessary  for 
it  to  estimate  the  amount  of  the  dissimilarity  in  conditions 
in  terms  of  cents  per  100  lbs.  in  the  rate.  Such  a  process 
is  extremely  difficult  and  incapable  of  being  carried  out 
with  any  degree  of  scientific  accuracy. 

In  the  first  place,  how  is  it  possible  to  determine 
the  relative  costs  of  service  where  the  conditions  are  in 
any  degree  dissimilar  ?  In  one  case  there  may  be  a  move- 
ment of  empty  cars  in  the  same  direction  as  that  of  the 
traffic  in  question.  In  such  a  case,  if  there  were  any  pos- 
sibility of  developing  a  large  amount  of  traffic,  a  very  low 
rate  would  be  made  by  the  railroad,  for  the  additional 
cost  of  carrying  this  traffic  would  only  be  the  difference  in 
the  cost  of  hauling  empty  and  loaded  cars.  In  the  other 
case,  the  movement  of  empty  cars  might  be  in  a  direction 
opposite  to  that  of  the  traffic  in  question.  Under  such 
circumstances,  any  increase  in  the  amount  of  traffic  would 
cost  the  railroad,  not  only  the  full  amount  of  the  ex|>ense 
of  hauling  a  loaded  car,  but  also  that  of  hauling  the  empty 
car  back  to  the  initial  point  of  shipment,  since,  under 
the  assumption,  it  would  be  impossible  to  secure  a  return 
load. 

Even  if  it  were  possible  to  ascertain  tlie  difference  in  the 
respective  assignable  costs  of  service  in  such  a  case,  it  is 
altogetlier  unlikely  that  any  Commission  would  admit  of 
such  a  wide  dissimilarity  of  rates  as  would  result  from 


60     FEDERAL  REGULATION  OF  RAILWAY  RATES 

basing  them  upon  such  a  dissimilarity  in  the  relative  costs 
of  service.  And  yet,  would  it  be  entirely  fair  to  the  rail- 
roads to  refuse  to  make  full  allowance  for  such  dissimi- 
larity in  conditions?  Furthermore,  a  refusal  on  the  part 
of  the  Commission  to  make  full  allowance  for  such  differ- 
ences in  the  relative  costs  of  service  would  result  in  great 
economic  loss,  and  in  the  end  would  be  disastrous.  To 
illustrate  this  point,  let  us  assume  a  specific  case. 

Let  A  and  B  be  two  points  served  by  the  same  railroad. 
Suppose  the  rates  at  these  points  were  ten  and  fifty  cents 
respectively,  such  rates  being  based  upon  the  respective 
assignable  costs  of  service  of  eight  and  forty  cents,  the 
discrepancy  arising  from  some  such  a  dissimilarity  in 
trafiic  conditions  as  that  cited  above. 

Suppose  also  that  under  the  stimulation  of  the  much 
lower  rate  at  A  a  traffic  of  one  thousand  tons  daily  had 
been  developed  at  that  point,  while  at  B,  owing  to  the 
higher  rate,  only  two  hundred  tons  could  be  obtained. 
Let  us  assume  also  that  the  difference  in  the  rate  is  the 
only  cause  of  the  discrepancy  in  the  amount  of  traffic  at 
the  two  points. 

The  total  cost  of  service  for  the  transportation  of  the 
1200  tons  of  traffic  would  then  be  as  follows : 

($.08X20X1000)  +  ($.40X20X200)  =  $3200. 

On  the  other  hand,  the  total  amount  paid  by  the  shippers 
for  the  transportation  of  these  1200  tons  would  be: 

($.10X20X1000)  +  ($.50X20X200)  =  $4000. 

Now  suppose  a  Commission  should  declare  this  variance 
of  rates  an  unjust  discrimination  against  B,  and  that  it 
should  accordingly  order  the  road  to  charge  twenty-five 
cents  to  both  points.  The  result  of  compliance  with  such 
an  order  would  be  that  the  traffic  at  A  would  fall  off,  and 
that  at  B  would  increase,  till  eventually  there  would  be 
600  tons  of  traffic  at  each  point.  Such  an  outcome  would 
probably  seem  desirable  to  the  merchants  at  B,  but  their 


OBJECTIONS  TO  RATE-FIXING  61 

gain  would  be  more  than  offset  by  the  loss  to  the  merchants 
at  A,  and  by  the  net  loss  to  the  whole  community.  After 
tlie  reatljustmcnt  had  taken  [)lace,  tlie  total  cost  of  service 
to  the  railroad  for  the  same  volume  of  traffic  would  be 

($.08X20X600)  +  ($.40X20X600)  =  $5760. 
Thus  the  additional  expenses  of  operation  due  to  this 
particular  traffic  would  be  increased  by  $25G0,  or  78  per 
cent.  Likewise  the  total  amount  charged  for  this  service 
would  be  correspondingly  increased.  This  would  now  be 
as  follows: 

($.25X20X600)  +  ($.25X20X600)  =  $6000. 
This  represents  a  net  increase  of  $2000,  or  50  per  cent. 

Similar  results,  though  of  a  less  striking  character,  would 
be  obtained  from  any  reduction  whatever  in  the  differential. 
Suppose  the  Commission  wished  to  be  very  conservative, 
and  only  ordered  that  the  differential  should  not  exceed 
thirty  cents.  If  the  railroad  were  to  comply  by  an  advance 
of  ten  cents  in  the  rate  to  A,  which  is  altogether  the  most 
probable  course  it  would  pursue  under  such  circum- 
stances, and  if  the  relative  amount  of  traffic  at  the  two 
points  should  change  in  like  proportion,  the  total  cost  of 
service  would  then  be  as  follows: 

($.08X20X857)  +  ($.40X20X343)  =  $4115; 
an  increase  of  $985,  or  about  30  per  cent. 

The  total  charge  upon  the  shippers  would  then  be: 

($.20X20X857)  +  ($.50X20X343)  =  $6858; 
an  increase  of  $2858,  or  about  72  per  cent. 

On  the  other  hand,  if  the  railroad  were  to  comply  with 
the  order  of  the  Commission  by  an  advance  of  five  cents  in 
the  rate  to  A,  and  l)y  a  corresjionding  reduction  in  the  rate 
to  B,  and  the  relative  amounts  of  traffic  were  correspond- 
ingly altered,  the  total  cost  of  service  would  then  be: 

($.08X20X900)  +  ($.40X20X300)  =  $3840; 
an  increase  of  $640,  or  about  20  per  cent. 


62       FEDERAL  REGULATION  OF  RAILWAY  RATES 

On  the  other  hand,  the  total  charges  paid  by  the  shippers 
would  now  be: 

($.15X20X900)  +  ($.45X20X300)=$5400; 
an  increase  of  $1400,  or  about  35  per  cent. 

Finally,  suppose  the  Commission  were  to  order  a  reduc- 
tion of  ten  cents  in  the  rate  to  B,  while  allowing  no  cor- 
responding increase  in  the  rate  to  A.  The  total  cost  of 
service  would  then  be: 

($.08  X  20  X  960)  +  ($.40  X  20  X  240) =$3456 ; 
an  increase  of  $256,  or  about  8  per  cent.  The  total  charges 
for  the  service  would  then  be: 

($.10X20X960) +  ($.40X20X240)=$3840 
a  decrease  of  $160,  or  4  per  cent.  On  the  other  hand,  the 
net  revenue  of  the  railroad  would  be  reduced  from  $800 
to  $384,  a  net  loss  of  52  per  cent.  Certainly  the  trivial 
reduction  in  the  average  rates  upon  this  trafiBc  would  not 
be  sufficiently  advantageous  to  offset  this  radical  reduction 
in  the  net  revenues  of  the  railroad.  Especially  such  a 
result  would  not  be  desirable  if  the  road  were  not  already 
paying  more  than  a  reasonable  return  upon  its  capital 
investment.  The  net  loss  of  $416  in  its  revenue  would,  in 
such  a  case,  necessarily  be  made  up  from  increased  charges 
upon  other  traffic,  and  other  shippers  would  thus  be  com- 
pelled to  pay  $416  in  return  for  a  reduction  of  $160  in  the 
rates  paid  by  the  shippers  at  B.^ 

The  results  obtained  above  illustrate  the  extreme  danger 
of  any  governmental  tinkering  whatever  with  a  differential 
which  is  the  legitimate  result  of  differences  in  traffic  con- 
ditions. 

In  the  illustration  used  in  the  precedmg  section,  we 

*  It  must  not  be  supposed  that  we  have  assumed  that  conditions  such 
as  these  are  frequently  met  with  in  actual  life.  In  practically  every  case 
there  are  other  causes  than  the  quantum  of  the  rate  which  determine  the 
relative  amounts  of  traffic  which  are  obtained  by  competing  points,  but 
to  the  extent  that  the  distribution  of  the  business  is  a  matter  of  the  rate,  the 
propositions  here  advanced  hold  true. 


100  tons,  net  revenue  :  $840 

200  " 

1280 

400  " 

1760 

800  "   " 

1920 

600  " 

640 

100  " 

WO 

150  " 

960 

200  "   " 

880 

250  "   " 

600 

300  " 

120 

OBJECTIONS  TO   RATE-FIXING  63 

have  assumed  that  the  advantages  of  A  and  B  for  develop- 
ing traffic  were  substantially  similar,  and  that  the  relative 
amount  of  traffic  at  each  point  was  entirely  dependent  upon 
the  rate.  Now  let  us  assume  that  the  relative  costs  of 
service  were  the  same,  say  eight  cents  per  100  lbs.,  but  that 
the  natural  advantages  of  A  for  developing  a  large  traffic 
were  much  greater  than  those  of  B.  Let  us  suppose, 
therefore,  that  the  amount  of  traffic  obtainable  at  A  and 
B  respectively  were  as  follows: 

At  A,  with  a  rate  of  50  cts.  per  100  lbs., 

40 

30 

20 

10 
AtB,  "  50 

40 

30 

20 

10 

If  the  additional  expenses  of  operation  due  to  this 
particular  traffic  were  eight  cents  per  hundred  in  each 
case,  the  rates  to  the  respective  points  would  be  as  follows  : 

At  A,  the  rate  would  be  24  cents,  yielding  a  net  revenue 
of  $2048  upon  640  tons  of  traffic.  At  B,  the  rate  would  be 
37  cents,  yielding  a  maximum  net  revenue  of  $961  upon 
155  tons  of  traffic.  In  both  cases  the  rate  would  thus  be 
placed  at  the  point  yielding  the  maximum  net  return.' 

In  order  to  arrive  at  one  of  those  factors  which  are  of 
controlling  force  in  determining  what  rate  shall  be  charged, 
we  have  so  far  taken  into  consideration  what  may  be 
designated  as  the  assignable  cost  of  service,  which  consists 
of  the  additional  expenses  of  operation  which  are  due  t© 
the  particular  traffic  in  question,  rather  than  the  actual 
cost  of  sers'ice,  which  includes  the  proportion  of  the  fixed 
charges  and  of  the  cost  of  maintenance  which  this  traffic 

'  These  rates  are  based  upon  the  principle  of  charging  what  the  traffic 
will  bear.  To  find  this  rate,  ascert.iin  what  net  rate  (=gross  rate  minus 
eiRht),  multiplied  by  the  amount  of  traffic  which  can  be  secured  at  that 
rate,  will  give  the  largest  net  revenue. 


64      FEDERAL  REGULATION  OF  RAILWAY  RATES 

ought  to  bear.  We  must  assume,  therefore,  in  the  above 
illustration,  that  the  actual  cost  of  service  is  much  greater 
than  eight  cents,  which  we  have  put  down  as  the  assignable 
cost  of  service.  Even  the  higher  charge  of  39  cents  might 
be  quite  reasonable  when  compared  with  the  actual  cost 
of  service. 

The  Interstate  Commerce  Commission  has  steadily 
refused  to  recognize  such  conditions  as  those  cited  in  the 
illustration  above  as  capable  of  producing  substantially 
dissimilar  circumstances  which  would  justify  such  a  dis- 
crimination in  the  rates  as  we  have  shown  would  result  if 
the  railroad  were  left  free  to  make  its  own  rates  in  accord- 
ance with  business  principles.  We  must  assume,  therefore, 
that  if  the  present  Commission  were  given  the  power  to 
fix  rates,  it  would  order  the  railroad,  in  such  a  case  as  we 
have  just  cited,  to  do  away  with  the  differential,  and  to 
charge  the  same  rate  to  both  points.  But  neither  rate 
could  be  raised  or  lowered  w^ithout  a  direct  loss  to  the 
railroad.  If  the  railroad  were  to  comply  with  such  an 
order,  it  would  probably  make  a  rate  of  about  thirty  cents 
to  both  points,  which  would  mean  a  loss  of  240  tons  to 
traffic  at  A,  with  a  gain  of  only  45  tons  at  B.  The  net 
revenue  derived  from  the  traffic  at  both  points  would  be 
greatly  reduced,  while  the  average  rates  per  ton  upon  the 
whole  traffic  would  be  considerably  increased.  Not  only 
would  the  railroad  suffer  in  a  loss  of  its  revenue,  but  the 
community,  as  a  whole,  would  suffer  in  a  loss  of  a  con- 
siderable portion  of  its  business,  and  the  trivial  advantage 
of  the  merchants  at  B  would  be  more  than  offset  by  the 
loss  to  those  at  A, 

Finally,  let  us  assume  that  the  dissimilarity  of  con- 
ditions is  the  result  of  keener  competition  at  A,  Let  us 
suppose  also  that  the  additional  expense  of  handling  the 
traffic  and  the  natural  advantages  of  each  point  for  develop- 
ing the  traffic  are  the  same.  The  statement  might  then  be 
somewhat  as  follows: 


OBJECTIONS  TO  RATE-FIXING  65 

Rate  of  10  cts.  per  100  lbs.,  at  A,  1000  tons  of  traffic  could  be  obtamed 
"       12  "  800 

14  "  600 
16                    "                     400 

..       j8  ..  200 

"       20  "  0  "  " 

"       10  "  at  B,  1000  "  " 

15  "  800  "  " 
"  20  "  600  "  " 
..       25  "  400 

30  "  250  "  " 

"       40  "  175 

If  the  railroad  were  free  to  make  rates  upon  business 
princijjles,  the  rates  which  would  be  made  under  such 
circumstances  would  be  1-1  cents  at  A,  with  a  maximum 
net  revenue  of  $720  on  600  tons  of  traffic,  while  the  rate 
at  B  would  be  21.5  cents,  with  a  maximum  net  revenue 
of  $1458  upon  540  tons  of  traffic. 

Now  if  the  Commission  were  to  declare  that  this  dis- 
crimination of  7^  cents  against  B  were  unlawful,  the  road 
would  comply  with  the  order  by  advancing  its  rates  to  A 
to  21. \  cents.  It  could  much  better  afford  to  give  up  the 
entire  traffic  at  that  point,  which  at  all  events  yields  only 
a  small  profit,  than  it  could  afford  to  reduce  its  rates  to 
B  sufficiently  to  enable  it  still  to  share  in  the  traffic  at  A. 
There  would  be,  tlierefore,  no  change  whatever  in  the  rates 
to  B,  but  tlie  road  would  be  excluded  from  a  share  in  the 
traffic  at  A,  and  it  would  be  compelled  to  make  up  its  loss 
by  higher  charges  to  some  other  point. 

The  illustrations  above  clearly  indicate  certain  points 
which  I  wish  to  make:  first,  the  utter  impracticability 
of  any  system  of  rate-making  upon  a  mileage  basis ; 
secondly,  the  intricacy  of  tlie  problem  of  rate-making;  and 
finally,  that  any  failure  on  the  part  of  Uie  Commission  to 
take  into  consideration  every  one  of  tliose  factors,  which, 
if  the  railroad  were  left  free  to  make  rates  upon  business 
principles,  would  be  of  controlling  force,  and  likewise 
any  failure  to  make  full  allowance  for  each  in  its  decision 
fixing  the  rate,  would  be  ver}'  harmful  to  the  interests  of 
the  country  as  a  whole. 


66     FEDERAL  REGULATION  OF  RAILWAY  RATES 

But  even  if  the  Commission  were  disposed  to  make  full 
allowance  for  any  dissimilarities  such  as  those  cited  above, 
—  and  experience  has  shown  that  there  are  some  circum- 
stances under  which  the  Commission  is  unwilling  to  make 
full  allowance,  —  how  would  it  be  possible  for  it  to  do  so  ? 
For  instance,  how  would  it  be  possible  for  it  to  measure  the 
additional  expenses  of  operation  due  to  any  particular 
item  of  traffic  when  the  conditions  which  determine  that 
additional  cost  of  service  change  from  day  to  day  ?  On 
the  other  hand,  if  it  wished  to  base  the  rate  upon  the  actual 
cost  of  service,  including  a  reasonable  proportion  of  the 
fixed  charges,  how  would  it  be  possible  to  determine  this  ? 
Moreover,  how  would  it  be  possible  for  a  Commission  to 
estimate  the  relative  intensity  of  the  forces  of  competition 
where  a  certain  amount  of  competition  exists  at  each  of 
several  points  ?  Would  the  Commission  be  inclined  to  assign 
the  proper  weight  to  market  competition,  and  could  it  do 
so  even  if  it  desired  ?  Finally,  how  could  the  Commission 
determine  how  much  traffic  would  be  developed  by  the 
rate  which  it  proposes  to  enforce  when  that  rate  has  not 
yet  been  tried? 

Even  if  we  could  secure  a  Commission  which  would  be 
disposed  to  make  full  allowance  for  all  these  varying  con- 
ditions, it  is  inevitable  that  it  should  frequently  make 
mistakes.  Even  the  traffic  managers,  whose  whole  atten- 
tion and  energy  are  directed  upon  the  problems  involved 
in  connection  with  but  a  very  small  portion  of  the  total 
traffic  of  the  country,  often  make  mistakes.  But  under  the 
present  system,  it  is  to  the  interest  of  the  railroad  to  rectify 
such  mistakes  as  soon  as  possible.  The  mistakes  of  a 
Government  Commission,  however,  could  be  rectified  only 
by  a  long  and  expensive  judicial  process.  It  appears, 
therefore,  that  a  more  legitimate  function  of  the  Commis- 
sion would  be  to  assist  the  railroad  in  discovering  and 
rectifying  its  mistakes,  leaving  the  punishment  of  the  illegal 
acts  of  the  railroads  to  the  courts  of  law  and  equity  where 
it  properly  belongs. 


OBJECTIONS  TO  RATE-FIXING  67 

In  the  above  illustrations  we  have  assumed  that  both 
A  and  B  were  served  by  the  same  railroad.  In  such  a 
case,  if  the  Commission  were  given  the  power  to  fix  rates, 
it  could  probably  also  name  tlie  differentials  which  should 
prevail  between  different  points  uj)on  the  same  railroad. 
But  suppose  lliat  A  and  B  were  served  by  different  railroads. 
In  sucli  a  case  the  only  remedy  for  what  might  appear  to 
be  an  unjust  discrimination  would  be  to  reduce  the  rate 
to  B,  or  to  increase  the  rate  to  A,  by  separate  action  against 
one  road  or  tjie  other.  But  if  the  rate  to  B  already  bore  a 
reasonable  relation  to  the  actual  cost  of  service,  and  if  the 
earnings  of  the  road  were  moderate,  the  rate  in  question 
could  not  lawfully  be  reduced,  whatever  might  be  the  rate 
to  A.  Moreover,  the  rate  to  A  could  not  be  increased  with- 
out establishing  a  minimum  rate.  The  undesirability  of 
such  a  policy  has  already  been  discussed.^  Thus  even  if 
the  Commission  is  given  the  power  to  name  a  maximum 
rate,  it  will  still  be  unable  to  remedy  the  vast  majority  of 
the  inequalities  in  rates  which  prevail  at  present. 

The  diflBculty  of  remedying  such  discrimination  brings 
us  to  another  important  consideration.  Upon  what  grounds 
may  the  rates  to  B  be  lawfully  reduced  ?  Obviously 
no  reduction  can  be  made  that  would  deprive  the  rail- 
road of  the  opportunity  of  earning  a  fair  return  upon 
its  capital  investment.  If  the  Commission  is  to  act  in- 
telligently, it  will  be  necessarv'  for  it  to  take  this  factor  into 
consideration  whenever  it  proposes  to  reduce  or  to  advance 
a  rate.  In  this  connection,  three  important  problems  at 
once  present  themselves.  In  the  first  place,  what  constitutes 
the  capital  investment  upon  which  a  fair  return  must  be 
allowed  ?  Secondly,  what  is  a  fair  return  ?  Is  it  three, 
four,  or  five  per  cent,  or  more  than  this,  and  if  more,  how 
much  more .'  Thirdly,  what  is  the  relation  of  the  particular 
rate  in  question  to  the  average  earnings  of  the  road  ?  Of 
the  many  thousands  of  difi'erent  rates  charged  by  the 
1  See  page  25  ff. 


68     FEDERAL  REGULATION  OF  RAILWAY  RATES 

railroad,  all  of  which  combined  may  tend  to  raise  its 
earnings  above  a  reasonable  amount,  is  the  particular 
rate  in  question  one  of  those  which  may  be  declared  un- 
lawful ? 

Before  we  take  up  these  points,  however,  let  us  for 
a  moment  consider  a  class  of  cases  from  which  such 
questions  may  be  eliminated.  It  is  in  this  field  also,  that 
the  usefulness  of  a  Government  Commission  may  be  great- 
est. Such  cases  are  those  where  it  can  be  shown  upon 
reasonable  grounds  that  some  reduction  in  the  rate  would 
lead  to  an  increase  of  the  traffic  sufficient  to  maintain  the 
earnings  of  the  road  unimpaired.  It  may  be  answered 
that  the  railroad,  of  its  own  accord,  will  correct  rates  of 
this  character.  Experience  has  shown,  however,  that  they 
have  not  always  done  so.  Such  failures  to  do  that  which 
would  seem  to  be  in  their  own  interests  may  be  the  result 
of  inadvertence  on  the  part  of  the  railroad  managers,  but 
they  are  often  the  result  of  intentional  discrimination 
against  the  weaker  communities  where  the  small  shippers 
are  located.  The  railroads  are  frequently  almost  com- 
pletely dominated  by  certain  large  shippers  at  competitive 
points.  Such  a  shipper  is  often  in  a  position  to  compel 
a  railroad,  by  means  of  a  threat  of  the  withdrawal  of  its 
share  in  the  through  traffic,  to  refuse  to  grant  reasonable 
concessions  in  rates  to  his  weaker  rivals  who  are  located 
at  local  points  along  the  line  of  the  railroad.  A  few 
such  cases  have  already  been  discussed  in  the  preceding 
chapter.  It  is  by  this  form  of  discrimination,  as  well  as  by 
the  secret  rebate,  that  certain  shippers  have  been  able  to 
crush  competition  and  to  establish  themselves  in  almost 
a  monopolistic  position.  If  the  rate  to  the  point  which  is 
discriminated  against  could  be  reduced  by  some  govern- 
mental authority,  the  railroad,  as  well  as  the  community 
to  which  the  lower  rates  were  extended,  would  gain  by  the 
increased  volume  of  the  traffic.  Moreover,  the  railroad 
would  then  have  nothing  to  fear  from  the  large  shipper, 


OBJECTIONS  TO  RATE-FIXING  69 

for  tlie  latter  could  no  longer  secure  an  advantage  by  a 
withdrawal  of  its  share  of  the  through  traffic,  for  t}ie  rates 
to  the  intermediate  points,  being  reduced  in  pursuance  of 
the  order  of  a  governmental  tribunal,  could  not  be  ad- 
vanced, no  matter  what  j)ressure  were  brought  to  bear  on 
tjie  railroad  by  the  large  shipper.  He  would,  therefore, 
distribute  his  traffic  tjie  same  as  formerly  in  whatever 
proportion  might  be  most  advantageous  to  him.  In  such 
cases  as  these,  therefore,  the  reduction  of  tlie  rate  would 
be  warranted  even  though  tlie  road  were  not  paying 
operating  expenses. 

Now  let  us  assume  that  the  reduction  in  the  rate 
would  be  attended  by  a  loss  in  tlie  net  revenue.  The 
principle  of  allowing  the  road  a  fair  return  upon  its  capital 
investment  would  then  have  to  be  applied.  But  Iiow  are 
we  to  determine  the  quantum  of  the  capital  investment, 
and  of  what  does  it  consist  ?  Is  it  equal  to  the  face  value 
of  all  the  outstanding  securities  of  the  railroad  ?  If  it 
were,  a  premium  would  be  placed  upon  watered  stock, 
and  those  roads  which  have  invested  their  earnings  in 
improvements,  without  a  corresponding  increase  in  the 
face  value  of  tlieir  securities,  would  be  placed  at  a  great 
disadvantage  when  compared  with  those  roads  whose 
stock  lias  been  unduly  inflated.  Under  such  a  system  the 
roads,  by  sufficiently  increasing  their  capitalization,  would 
soon  learn  how  to  avoid  all  regulation.  Obviously,  such  a 
proposition  could  not  be  the  subject  of  serious  considera- 
tion. The  payment  of  a  rate  of  four,  five,  or  six  per  cent 
upon  tlie  face  value  of  the  securities  can  tlierefore  have  no 
signification  whatever,  so  far  as  concerns  the  determina- 
tion of  a  reasonable  return  upon  the  capital  investment, 
unless  we  have  some  means  of  determining  the  relation 
which  the  total  capitalization  of  tlie  road  bears  to  the 
actual  capital  investment. 

Secondly,  the  proposition  has  been  advanced  that  the 
true  basis  upon  whicli  our  valuation  should  be  made  is 


70     FEDERAL  REGULATION  OF  RAILWAY  RATES 

the  market  value  of  the  stock,  and  that  the  roads  should 
be  allowed  a  fair  return  upon  an  amount  equivalent  to 
the  present  market  value  of  all  the  outstanding  securities. 
Obviously,  such  a  policy  could  only  lead  us  in  a  vicious 
circle.  The  market  value  of  the  stock  represents  exactly 
the  estimated  earning  capacity  of  the  road  capitalized  at 
the  current  rate  of  interest.  But  the  earnings  depend  upon 
the  rates  which  are  charged,  the  volume  of  the  traffic,  and 
the  relation  of  the  expenses  of  operation  to  the  gross  reve- 
nue. If  an  unreasonably  high  rate  were  charged,  and  the 
amount  of  traffic  were  large  and  fairly  constant,  the  earn- 
ings of  the  road  would  be  heavy,  and  consequently  the 
market  value  of  the  stock  would  be  very  high.  If  this 
method  were  employed  for  determining  the  capitalization, 
it  would  be  impossible  to  reduce  any  rate  that  already 
yielded  a  maximum  net  return,  for  such  action  would 
tend  to  reduce  the  market  price  of  the  stock.  It  would  re- 
sult in  reducing  the  rate  of  interest  upon  a  sum  equivalent 
to  the  aggregate  market  value  of  the  stock  to  a  point  below 
the  market  rate,  which,  under  our  hypothesis,  is  the  very 
thing  that  should  not  be  done.  Therefore,  the  adoption 
of  this  method  of  determining  the  capitalization  upon 
which  a  reasonable  return  is  to  be  allowed  would  mean  the 
abandonment  of  practically  all  regulation.  Under  such  a 
system,  it  would  be  impossible  to  prevent  a  general  ad- 
vance of  rates.  The  large  holders  of  railway  stocks  could 
arbitrarily  advance  the  nominal  price  of  these  securities 
till  the  Commission  would  be  compelled  to  justify  any 
rate  which  the  railroad  wished  to  charge,  in  order  that 
a  reasonable  return  should  be  allowed  upon  this  inflated 
capitalization.  But  it  may  be  said  that  the  Commission 
may  take  account  of  such  manipulation  of  security  values. 
Not  only  would  there  be  great  practical  difficulties  in  de- 
termining whether  a  given  price  for  the  securities  is  legiti- 
mate or  not,  but  if  the  Commission  attempted  to  discrim- 
inate, it  would,  by  the  very  act  of  such  discrimination. 


OBJECTIONS  TO  RATE-FIXING  71 

abandon  the  theorj'  of  capitalization  upon  the  basis  of 
market  value,  and  it  would  be  compelled  to  seek  for  some 
other  standard. 

Moreover,  if  the  market  value  of  the  securities  were 
taken  as  the  basis  of  capitalization,  tlie  result  would  be 
that  those  struggling  roads  which  have  recently  been 
built  into  new  territory,  and  are  now  operated  at  a  loss,  and 
the  value  of  whose  stock  at  present  is  far  below  par,  per- 
haps even  below  an  amount  which  would  represent  the 
actual  cash  investment  in  construction,  would  always 
continue  to  be  operated  at  a  loss,  till  manipulators  could 
be  induced  to  arbitrarily  inflate  the  value  of  the  stock, 
a  process  by  no  means  easy  where  the  various  holdings  are 
small  and  scattered. 

In  the  third  place,  it  has  been  suggested  that  the  rail- 
roads be  allowed  a  fair  return  only  upon  the  actual  capital 
invested.  The  amount  of  such  invested  capital,  however, 
could  not  be  appraised  even  approximately.  Should  it 
include  only  the  cash  expenditure  in  the  construction  of 
the  railroad,  and  the  purchase  of  equipment,  or  should  it 
cover  the  cost  of  securities  to  the  original  purchaser?  If 
the  former  were  to  be  taken  as  the  basis,  investors  in 
railway  securities  would  become  so  scarce  that  it  would 
be  utterly  impossible  to  finance  a  new  railroad.  In  the 
very  nature  of  things,  the  capitalization  must  be  large 
enough  to  cover  the  incidental  losses  which  inevitably 
occur  in  connection  with  floating  any  new  enterprise  of  this 
character.  If,  on  the  other  hand,  the  capitalization  were 
based  upon  the  actual  cost  of  the  securities  to  the  original 
investor,  it  would  be  nccessarj-  to  allow  rates  to  be  charged 
in  perpetuity  which  would  enable  the  railroad  to  pay 
dividends  upon  enormous  amounts  of  capital  which  have 
not  infrequently  been  wasted  in  large  pavments  to  fake 
construction  companies,  by  exorbitant  promoters'  profits, 
and  by  the  blunders  and  incompetency  of  those  in  charge 
of  the  original  enterprise. 


72     FEDERAL  REGULATION  OF  RAILWAY  RATES 

Furthermore,  such  a  system  does  not  allow  for  altera- 
tions in  the  price  of  materials,  and  for  progress  in  the  in- 
dustrial arts,  by  which  many  old  investments  of  capital 
are  rendered  practically  worthless.  Such  a  method  of  ap- 
praisal would  also  work  great  injustice  among  the  various 
railroads.  One  railroad  might  have  paid  practically  no 
dividends  for  many  years,  preferring  to  invest  its  earnings 
in  permanent  improvements,  while  another  might  have 
paid  a  fair  rate  of  dividends  from  the  first,  and  have  added 
little  or  nothing  to  its  tangible  assets  by  way  of  improve- 
ments paid  for  out  of  earnings.  Obviously,  it  would  be 
extremely  unjust  to  limit  these  roads  to  the  same  rate  of 
interest  upon  the  original  capital  investment. 

But  aside  from  the  injustice  which  would  result  from 
taking  any  one  of  these  standards  as  a  basis  for  capitaliza- 
tion, there  would  be  insurmountable  practical  diflficulties 
in  connection  with  the  use  of  any  one  of  them.  It  would 
be  utterly  impossible  to  determine  the  initial  cost  of  the 
actual  construction  of  the  railroad,  and  it  would  be  equally 
impossible  to  ascertain  the  price  paid  for  the  original 
securities.  Many  of  these  securities  were  sold  in  job  lots 
by  private  contract,  in  which  cases  the  price  was  usually 
arrived  at  by  private  bargain,  the  promoter  securing  the 
best  price  he  could,  while  the  purchaser  paid  as  little  as 
possible.  Furthermore,  if  the  Commission  wished  to  make 
allowance  for  the  investment  of  earnings  in  permanent 
improvements,  there  is  no  system  of  railway  accounting 
which  has  yet  been  adopted  by  the  railroads  which  would 
indicate  even  approximately  the  amounts  so  expended, 
such  items  being  frequently  charged  to  the  cost  of  main- 
tenance. The  Commission  would  be  upon  rather  delicate 
grounds  if  it  were  to  attempt  to  say  exactly  to  what  extent 
the  failure  to  maintain  a  fair  rate  of  dividends  in  times 
past  was  due  to  the  investment  of  earnings,  and  to  what 
extent  it  was  due  to  bad  management,  poor  business,  or 
other  causes. 


i    UNiVEf^^JTY   ) 


OBJECTIONS  TO  RATE-FIXING  73 

Finally,  the  standard  which  is  most  frequently  pro- 
posed as  the  proper  basis  for  determining  the  capitaliza- 
tion upon  which  a  reasonable  return  is  to  be  allowed,  is  the 
present  value  of  the  tangible  assets.  Those  who  advocate 
this  plan  would  allow  notJiing  for  what  is  known  as  good- 
will, or  the  earning  capacity  of  the  railroad.  To  ascertain 
this  value,  we  are  told  that  we  have  but  to  appraise  the 
present  cost  of  reduplication,  and  to  make  due  allowance 
for  the  depreciation  of  the  existing  property  which  has 
taken  place  through  wear  and  tear.  Tliis  method  of  ap- 
praisal, while  necessarily  difficult  and  inaccurate,  never- 
theless possesses  a  greater  degree  of  practicability  than  any 
of  the  others  proposed.  It  presents,  however,  a  feature  of 
injustice.  The  present  holders  of  railway  securities  have 
purchased  them  at  their  market  price.  But  the  market 
price  depends  solely  upon  the  earning  capacity  of  the  rail- 
road and  has  nothing  to  do  with  the  value  of  the  tangible 
assets  estimated  on  the  basis  of  the  cost  of  reduplication. 
If  railroads  were  to  be  restricted  to  a  fair  return  upon  an 
amount  equivalent  to  the  cash  value  of  their  tangible 
assets,  precipitous  declines  would  at  once  take  place  in  the 
value  of  many  of  our  railway  stocks,  and  innocent  holders 
all  over  the  country  would  suffer  severe  loss.  Such  argu- 
ments as  these,  however,  only  tend  to  befog  the  main  issue. 
Whenever  any  one  becomes  the  owner  of  railway  stock, 
he  assumes  certain  obligations  to  the  public.  Railroads 
cannot  be  permitted  to  maintain  extortionate  rates,  merely 
because  the  maintenance  of  such  rates  is  necessary  in 
order  to  enable  the  railroad  to  continue  to  pay  a  fair  rate 
of  dividends  upon  the  investment  of  some  "poor  widow." 
Railroads  are  legally  bound  to  charge  reasonable  rates, 
whoever  may  be  the  owners  of  their  stock,  and  whatever 
inflated  prices  they  may  have  paid  for  it. 

As  has  already  been  pointed  out,  however,  this  method 
of  appraisal  is  an  exceedingly  difficult  one.  If  it  is  to  be 
employed  at  all  as  a  basis  for  public  regulation,  it  is  neces- 


74     FEDERAL  REGULATION  OF  RAILWAY  RATES 

sary  that  there  should  be  some  administrative  machinery 
for  making  such  appraisals.  It  is  impossible  for  a  Com- 
mission to  arrive  at  any  basis  for  intelligent  action  from 
hearing  the  testimony  presented  at  the  bar  when  the  legal- 
ity of  some  particular  rate  is  questioned.  It  is  altogether 
unlikely  that  the  complainants  could  produce  any  reliable 
estimate  of  the  cost  of  reduplication  of  the  entire  system 
or  systems  of  railways  over  which  their  traffic  moves. 
Even  if  the  defendant  railroads  could  produce  such  esti- 
mates, they  would  be  apt  to  present  the  case  in  a  light 
favorable  to  themselves,  and  the  refutation  of  such  evi- 
dence would  be  exceedingly  difficult.  Any  estimate  of  the 
value  of  the  tangible  assets  of  the  road,  under  such  circum- 
stances, could  therefore  be  no  more  than  mere  guesswork. 

If  intelligent  action  is  to  be  obtained,  it  is  necessary  that 
the  government  should  face  the  problem  squarely.  It 
would  be  necessary  that  several  commissions  of  experts 
should  be  employed  continually,  and  that  they  should  have 
no  other  business  than  to  make  these  appraisals.  It  would 
probably  not  be  possible  for  a  single  one  of  these  com- 
missions to  make  careful  appraisals  of  more  than  three  or 
four  railroads  each  year.  It  would  be  necessar}'  for  it  to 
traverse  the  whole  length  of  the  road,  to  measure  carefully 
every  grade  and  cut,  and  to  estimate  the  value  of  the  right 
of  way,  and  that  of  the  culverts  and  bridges,  with  all  the 
rolling-stock  and  other  railway  property.  That  the  results 
of  such  a  process  would  be  inaccurate  is  shown  by  the  fact 
that  the  estimated  cost  of  projected  lines  has  frequently 
fallen  fully  twenty-five  per  cent  short  of  the  actual  cost, 
even  where  that  estimate  has  been  made  by  experts,  after 
an  extremely  minute  and  careful  examination  of  the  whole 
of  the  route  surveyed. 

After  such  appraisals  had  once  been  made  by  the  gov- 
ernment commissions,  the  problem  would  be  somewhat 
simplified,  though  it  would  be  necessary  to  keep  constant 
surveillance  over  the  condition  in  which  the  road-bed  is 


OBJECTIONS  TO  RATE-FIXING  75 

maintained,  the  amounts  expended  in  its  permanent  im- 
provement, tjie  gradual  deterioration  in  the  value  of  the 
rolling-stock,  together  witJi  additions  to  the  same,  the 
changes  in  the  market  price  of  all  materials  and  labor, 
and  tlie  gradual  enhancement  or  depreciation  of  the  value 
of  the  real  estate  owned  by  the  railroad,  and  that  modi- 
fications should  be  made  in  the  estimated  capitalization 
from  year  to  year,  in  accordance  with  the  changes  in 
these  various  factors.  Doubtless  the  advocates  of  rate- 
fixing  by  a  Commission  will  shrink  from  the  establishment 
of  so  much  administrative  machinery,  but  they  have  so 
far  proposed  no  other  means  by  which  a  Commission  may 
intelligently  determine  tlie  reasonableness  of  a  given  rate 
'per  se.^  How  would  it  be  possible  to  determine  what  con- 
stitutes legitimate  earnings  for  a  railroad  unless  we  have 
some  means  of  determining  the  amount  of  capital  upon 
which  a  fair  return  is  legitimate  ? 

Now  if  we  assume  that  we  have  a  means  for  deter- 
mining the  actual  value  of  the  railway  pro|)erty,  the  next 
problem  will  be  the  determination  of  what  constitutes  a 
reasonable  return  upon  that  capital.  Is  it  four,  five,  or  six 
per  cent,  or  more  ?  If  not  a  definite  rate  per  cent,  is  it  the 
loan  market  rate,  the  average  return  on  capital  invested  in 
production  outside  of  the  railroad  industry,  or  should  it  be 
more  tJian  this,  and  if  more,  how  much  more .'' 

Of  these  tliree  alternatives,  tlie  first  two  are  manifestly 
im})racticable.  Either  of  them,  if  adopted,  would  prac- 
tically mean  the  cessation  of  railroad  building.  Suppose 
we  were  able,  by  some  mathematical  process,  to  ascertain 

'  After  the  passajjc  of  the  rate  regulation  bill  in  June,  190C.  President 
Roosevelt  antl  his  friends  conceived  a  plan  for  directing  the  Interstate 
Commerce  Commission  to  su|)ervise  the  work  of  making  a  fair  ajijjraisal 
of  the  value  of  all  railway  projierty  in  the  I'nited  States.  Bills  to  this  end 
were  introduced  in  Ixith  the  Senate  and  the  House,  but  just  as  this  is 
going  to  press,  word  has  come  that  the  President  has  aliandoued  his 
efforts  in  this  direction,  l)olh  on  account  of  the  ent)rmous  expense  in- 
volved, and  of  the  little  probability  that  the  data  finally  obtiiined  would 
be  sufEcieutly  accurate  to  possess  any  practical  or  scientific  value. 


76     FEDERAL  REGULATION  OF  RAILWAY  RATES 

that  the  average  returns  in  other  lines  of  industry,  after 
due  allowance  had  been  made  for  exceptional  gains  and 
losses,  were  four  per  cent.  The  Commission  would  then 
limit  the  returns  of  the  railroad  to  this  amount.  What 
intelligent  business  man  would  invest  in  a  railroad  upon 
such  conditions  ?  If  he  invests  in  other  lines  of  industry, 
he  is  sure  of  a  return  of  four  per  cent,  providing  his  in- 
vestments are  sufficiently  diversified.  But  if  he  invests  in  a 
railroad,  on  the  other  hand,  he  could  obtain  only  four  per 
cent  as  a  maximum,  with  a  possibility  of  a  return  much 
less  than  this,  since  practically  no  new  railroads  are  per- 
fectly sure  of  their  ability  to  maintain  a  rate  of  dividends 
as  high  as  four  per  cent,  even  though  there  may  be  no 
limitations  as  to  the  rates  which  they  may  be  permitted  to 
charge. 

This  fact  is  fully  established  by  the  history  of  our  rail- 
roads, many  of  which  paid  no  dividends  at  all  for  a  long 
term  of  years,  while  in  fully  half  of  the  cases  there  has  been 
a  total  loss  to  the  original  stockholders.  Therefore,  it  is 
only  upon  the  possibility  of  a  return  much  greater  than 
the  average  that  men  may  be  induced  to  invest  in  a  pro- 
jected railroad.  Railroad  investment  is  at  all  events  more 
or  less  precarious,  and  it  is  absolutely  essential  that  there 
should  be  exceptional  gains  to  counterbalance  the  excej>- 
tional  losses.  Otherwise  no  future  development  of  the 
railway  industry  in  this  country  can  be  expected.  If,  then, 
the  return  allowed  must  be  greater  than  the  average,  how 
much  greater  shall  it  be  ? 

Obviously,  such  a  question  cannot  be  answered  a  priori. 
There  are  many  elements  which  would  enter  into  the 
determination  of  the  amount  of  the  return  which  should 
be  allowed  in  any  given  case.  The  Commission  would  be 
bound  to  consider  whether  the  original  investment  had 
been  well  or  ill  advised.  The  public  are  certainly  under 
no  obligations  to  pay  rates  which  would  enable  a  railroad, 
which  had  been  blunderingly  built  where  there  was  little 


OBJECTIONS  TO  RATE-FIXING  77 

economic  need  for  it,  to  pay  more  than  an  average  return 
upon  its  capital  investment.  Secondly,  the  Commission 
would  necessarily  inquire  whether  there  were  not  other 
causes,  apart  from  tlie  rates  charged,  tliat  would  cause  the 
earnings  of  the  road  to  fall  below  the  normal  rate.  Such 
causes  might  be  the  introduction  of  competition,  or  the 
changes  in  the  trade-routes.  There  would  be  no  justifica- 
tion in  compelling  the  public  to  pay  rates  sufficient  to 
cover  the  incidental  losses  in  all  cases.  Such  losses  are 
absolutely  inevitable  in  the  ordinary  course  of  trade  and 
industry.  That  which  is  essential  is  that  there  should  be 
sufficient  exceptional  gains  to  counterbalance  in  the  long 
run  these  exceptional  losses. 

Furthermore,  it  would  be  necessary'  for  the  Commission 
to  inquire  into  the  past  and  present  management  of  the 
railroad.  A  road  which  is  well  managed  might  be  entitled 
to  ten  per  cent,  while  two  per  cent  might  be  excessive  for 
a  road  that  is  poorly  managed.  Then,  too,  there  are  all 
degrees  of  bad  and  good  management.  In  each  case  tliat 
came  before  it,  the  Commission  would  be  placed  on  rather 
delicate  grounds  if  it  were  to  attempt  to  estimate  the 
superiority  of  one  management  over  that  of  anotlier  in 
terms  of  the  rate  per  cent  which  should  be  allowed  upon 
the  capital  investment.  But  if  a  sufficient  premium  is  not 
placed  upon  extraordinary  efficiency  of  management,  it  is 
certain  that  in  no  case  will  such  efficiency  of  management 
be  exhibited. 

It  cannot  be  denied  that  such  problems  as  the  above  are 
extremely  difficult.  It  is  certain,  however,  that  if  intelligent 
action  is  to  be  obtained  from  a  Commission  which  has 
been  given  the  power  to  fix  rates  in  all  cases  of  com])laint, 
not  one  of  them  can  be  ignored  by  that  body,  and  that  any 
failure  to  assign  weiglit  to  any  one  of  tliese  various  factors 
would  be  attended  with  disastrous  consequences. 

But  there  is  still  another  consideration  in  connection  with 
the  return  which  should  be  allowed.    Suppose  a  railroad, 


78     FEDERAL  REGULATION  OF  RAILWAY  RATES 

owing  to  its  efficient  management,  were  found  to  be  en- 
titled to  a  return  of  six  per  cent  upon  its  capital  stock. 
There  would  still  be  a  subterfuge  by  which  it  might  in- 
crease its  aggregate  returns  to  a  considerable  extent.  It 
could  retire  its  bonds,  and  issue  in  their  place  a  dividend 
of  stock  to  the  stockholders,  and  sell  a  sufficient  amount 
of  the  stock  in  the  open  market  to  pay  for  the  bonds  retired. 
Thus  without  increasing  its  aggregate  capitalization  at 
all,  the  proportion  of  that  capitalization  which  would  be 
entitled  to  six  per  cent  would  be  considerably  increased. 
It  would  be  necessary,  therefore,  that  the  Commission 
should  take  account  of  such  transactions  as  these,  which 
might  be  made  by  the  railroad  subsequently  to  the  action 
of  the  Commission  limiting  the  rate  of  dividends  which 
a  railroad  might  legitimately  pay.^ 

Furthermore,  there  is  no  justification  for  the  belief  that 
the  Commission  would  always  be  inclined  to  be  liberal 
with  the  railroads.  If  the  Commission  were  once  given  the 
power  to  fix  rates,  as  we  shall  subsequently  point  out, 
the  courts  could  not  review  the  exercise  of  its  discretionary 
power.  Only  in  the  clearest  cases  of  confiscation  would 
its  order  be  invalid.  It  might  so  act  as  to  curtail  the  divi- 
dends, so  that  the  original  stockliolders  would  suffer  heavy 
loss,  and  it  might  thus  discourage  all  future  investment  in 
railroads,  without  coming  into  contact  with  the  constitu- 
tional prohibition  against  the  taking  of  private  property 
for  public  purposes  without  due  compensation  or  due 
process  of  law.  The  conduct  of  some  of  our  State  Com- 
missions would  give  us  grounds  to  fear  that  such  a  short- 
sighted policy  might  be  adopted.  In  December,  1905,  the 
Illinois  and  the  Nebraska  Commissions  both  ordered 
blanket  reductions  of  all  intrastate  rates.  In  many  cases 
the  reductions  amounted  to  from  four  to  twelve  per  cent, 

^  We  do  not  wish  to  imply  that  the  Commission  would  actually  limit 
the  rate  of  dividends,  but  by  the  reduction  of  a  rate  because  the  rate  of 
dividends  exceeded  a  certain  amount,  it  would  virtually  accomplish  the 
same  thing. 


OBJECTIONS  TO  RATE-FIXING  79 

and  they  were  made  entirely  apart  from  any  careful  con- 
sideration of  the  traffic  conditions  surrounding  tlie  par- 
ticular commodities,  the  rates  on  whicli  were  reduced. 
The  constitutionality  of  some  of  these  reductions  has  been 
seriously  questioned. 

In  Texas,  the  power  to  fix  rates  has  been  exercised  by 
a  commission  for  more  than  a  decade.  In  1894,  the  capi- 
talization of  the  various  roads  in  Texas  averaged  $40,873 
per  mile.  By  1904,  the  average  capitalization  had  been 
reduced  to  $32,400  per  mile,  a  net  reduction  of  more  than 
twenty  per  cent.  Yet  in  s])ite  of  this  enormous  reduction 
in  the  capitalization,  the  Commission  has  so  greatly  re- 
duced the  rates  on  the  Texas  railroads  that  they  are  not 
yet  able  to  meet  their  fixed  charges.  The  percentage  of  the 
operating  expenses  to  that  of  the  gross  income  is  higher 
than  in  almost  any  other  state  in  the  Union,  being  in  1905 
76.91,  and  for  the  year  1904,  79.31.  In  1905  the  gross 
income  of  all  the  Texas  roads  was  $68,145,132,  while 
the  gross  operating  expenses  were  $52,411,747,  leaving  a 
net  income  of  only  $15,737,385.  The  fixed  charges  for  the 
same  year  were  $15,034,000.  It  is  needless  to  say  tliat  in 
not  a  few  cases,  the  roads  were  unable  to  meet  their  fixed 
charges,  while  little  or  almost  nothing  was  left  to  the 
stockJiolders.^ 

A  third  main  difficulty  which  appears  is  that  of  deter- 
mining the  relation  of  the  particular  rate  in  question  to 
the  earnings  of  \}\e  road,  and  to  the  other  rates  charged. 
Obviously,  all  the  rates  charged  by  a  railroad  would  not 
necessarily  be  unreasonable  simply  becau.se  Uie  earnings 
of  the  road  were  excessive.  Neither  could  we  assume 
that  the  most  unreasonable  rate  would  be  the  first  to  be 
complained  of.  The  Commission  would  have  to  decide, 
therefore,  whether  this  particular  rate,  among  tlie  thousands 
of  rates  charged  by  the  railroad,  is  one  of  tliose  which  are 
unreasonable.    But  it  would  manifestly  be  impossible  for 

'  Report  of  the  Texas  Railroad  Commission  for  1905,  pp.  11,  iiO,  510. 


80      FEDERAL  REGULATION  OF  RAILWAY  RATES 

the  Commission  to  take  into  consideration  the  question 
of  the  reasonableness  of  every  rate  charged  by  the  railroad, 
especially  before  such  rates  had  been  complained  of.  What 
could  a  Commission  do  in  such  a  case  other  than  to  adopt 
the  principle  of  first  come,  first  served  ?  The  only  alterna- 
tive would  be  to  compare  the  rate  in  question  roughly  with 
certain  other  rates  charged  by  the  railroad,  and  to  make 
the  best  guess  possible  as  to  their  relative  reasonableness. 

Another  important  objection  to  rate-fixing  by  a  Com- 
mission is  the  danger  of  rigidity  of  rates.  ^  One  of  the 
most  important  factors  in  the  development  of  our  national 
resources  has  been  the  acuteness  with  which  our  railway 
managers  have  foreseen  the  possibility  of  developing 
traflic,  and  the  readiness  with  which,  in  such  cases,  they 
have  frequently  made  rates  which  might  have  been  far 
below  the  immediate  cost  of  the  service,  with  the  expecta- 
tion that  the  trafiic  would  eventually  become  profitable 
by  reason  of  its  increased  volume.  If  the  Commission  is 
given  the  power  to  fix  all  rates  in  case  of  complaint,  sev- 
eral causes  will  operate  to  check  this  policy  on  the  part  of 
the  railroads,  which  has  hitherto  been  of  such  great  ad- 
vantage to  the  country  as  a  whole. 

In  the  first  place,  if  the  power  to  fix  rates  includes  the 
power  to  set  a  minimum  or  absolute  rate,  it  will  act  as  an 
absolute  check  to  such  reductions  wherever  it  is  exercised. 
Secondly,  even  if  the  Commission  were  only  given  the 
power  to  fix  maximum  rates,  this  power  might  be  so  ex- 
ercised as  to  bring  about  similar  results.  Wherever  state 
regulation  of  rates  has  been  tried,  the  railroads  in  fear  and 
trembling  begin  to  think  out  plans  by  which  they  may 
prevent  a  reduction  of  their  rates  and  the  resulting  cur- 

^  Since  the  above  was  written  a  number  of  State  Commissions  have 
issued  orders  for  the  promulgation  of  hard  and  fast  schedules  of  maximum 
mileage  rates.  The  most  striking  of  these  perhaps  is  the  schedule  of 
class  and  commodity  rates  which  the  Minnesota  Commission  declared 
should  be  made  effective  in  that  State  upon  and  after  the  first  day  of 
January,  1907.  The  constitutionality  of  this  order  has  been  strongly 
questioned,  and  the  railroads  will  appeal  to  the  courts. 


OBJECTIONS  TO  RATE-FIXING  81 

tailraent  of  their  dividends.  They  cease  voluntarilj  to 
reduce  rates,  even  where  they  could  greatly  increase  the 
traffic  by  so  doing,  for  fear  that  the  government  will  reduce 
other  rates,  in  order  to  maintain  the  existing  differentials 
between  localities  and  classes  of  commodities,  since  they 
would  lose  more  by  the  substantial  reduction  of  the  rates 
to  those  points  where  there  was  little  probability  of  any 
considerable  increase  of  traffic  than  they  would  gain  by 
the  increase  of  the  traffic  at  other  points.' 

In  the  second  place,  railroads  would  refuse  to  make 
such  voluntary'  reductions,  for  fear  that  if  the  traffic  should 
not  develop  in  accordance  with  their  expectations,  and  the 
new  rate  should  prove  to  be  permanently  unprofitaiile, 
they  would  find  it  difficult  to  restore  the  old  rate.  A  gov- 
ernmental regulating  body  would  be  very  apt  to  assume 
tliat  the  public  has  a  vested  right  to  long-established  rates, 
and  even  to  those  which  have  been  in  force  for  a  year  or 
more,  upon  faith  in  the  continuance  of  which  capital  has 
been  invested  and  industries  have  been  built  up. 

In  1891  and  189'2  the  British  Parliament  issued  separate 
orders  to  each  of  the  thirty-five  principal  railway  systems 
in  the  United  Kingdom  establishing  a  system  of  maximum 
rates  which  might  be  enforced  upon  each  of  the  various 
roads.  In  attempting  to  conform  their  schedules  to  these 
legal  requirements,  the  railroads  temporarily  withdrew 
the  special  rates  which  had  been  accorded  previous  to 
that  time.  The  resulting  situation  has  been  well  described 
by  Mr.  Acworth :  - 

'  In  Georgia  a  railroad  commission  has  long  exercised  the  power  to 
fix  rates.  The  view  of  the  situation  wliich  is  taken  hy  some  of  tlie  i)eople 
of  that  State  is  well  illustrated  hy  the  following  extract  from  the  .Vtlanta 
Journal:  "  When  a  merchant  aj)proachcs  the  railroad  for  rates  in  Georgia, 
he  is  met  hy  the  rejily  that  the  Itailroad  Commission  regulates  that,  and 
he  can  get  no  reduction.  If,  however,  they  are  asked  for  rates  to  towns 
outside  of  Georgia,  the  application  receives  immediate  and  favorable 
consideration."  Furthermore,  the  same  article  goes  on  to  show  that  the 
rates  within  the  State  of  Georgia  are  much  higlier  than  those  in  neigh- 
boring states  which  ix).s.sess  no  commissions  with  rate-fixing  {X)wers. 

'  W.  M.  Acworth,  The  Elemenii  of  Railway  Economics,  p.  151. 


82     FEDERAL  REGULATION  OF  RAILWAY  RATES 

All  over  the  country  an  outcry  arose.  Traders  by  hundreds 
and  thousands  refused  to  pay  their  monthly  accounts.  Parliament 
was  appealed  to,  and  representatives  of  the  railways  in  the  House 
of  Commons  were  unable  to  make  any  satisfactory  defense. 
The  President  of  the  Board  of  Trade  hastened  to  promise  in 
language  not  often  heard  by  a  Cabinet  Minister,  speaking  offi- 
cially in  behalf  of  a  great  Department  of  State,  that  "the  rail- 
ways should  be  brought  to  their  senses."  And  yet  the  railways 
had  only  attempted  to  charge  the  rates  which  Parliament,  after 
ten  years  of  investigation  into  the  question,  had  just  enacted  as 
the  rates  which  the  companies  "might  lawfully  charge  and 
make."  The  irony  of  the  situation  was  complete.  Personal 
experience  had  done  in  a  week  what  all  the  writings  of  "careful 
students  of  the  question  "  could  not  accomplish  in  half  a  century, 
and  had  convinced  the  practical  man,  whether  legislator  or 
trader,  that  fixed  maxima  are  next  to  no  use  in  preventing 
extortion. 


The  result  of  this  agitation  was  the  passage  of  the  Rail- 
way and  Canal  Traffic  Act  of  1894.  This  Act  provides 
that  any  shipper  may  complain  to  the  Railway  Commis- 
sion of  any  advance  of  rates  on  or  after  January  1,  1893, 
and  that  in  any  such  case  the  burden  of  proof  is  upon 
the  railroad  to  justify  the  advance.  Since  the  passage  of 
this  Act,  many  complaints  of  this  character  have  come 
before  the  Commission,  and  the  decision  has  usually 
been  against  the  railroads.  In  fact  the  Commission  re- 
cognizes only  two  circumstances  which  would  justify  an 
advance,  one  being  wherever  such  an  advance  is  necessary 
to  do  away  with  unjust  discriminations  between  localities 
and  classes  of  commodities,  and  the  other  whenever  the 
railroad  can  clearly  show  that  the  cost  of  handling  the 
particular  traffic  in  question  has  increased.  Thus  it 
happened  that  when  for  some  external  cause  a  road  lost 
an  important  part  of  its  traffic,  consisting  of  half  its  export 
trade  in  coal,  the  Commission  refused  to  allow  the  road  to 
protect  its  earnings  by  higher  charges  upon  other  com- 
modities. 


OBJECTIONS  TO  RATE-FIXING  83 

The  testimony  of  the  best  English  authorities  is  to  the 
eflFect  that  this  legislation  has  done  much  to  prevent  any 
natural  and  gradual  lowering  of  the  rates.'  A  railway 
company  is  still  free  to  reduce  a  rate,  but  it  has  ceased  to 
be  free  to  raise  it.  A  manager  will,  therefore,  refuse  to 
make  experimental  reductions  for  the  purpose  of  develop- 
ing traffic.  If  such  a  rate  should  prove  to  be  unprofitable, 
he  would  be  unable  to  restore  the  old  rate  without  facing 
a  lawsuit,  and  even  then  he  would  be  unsuccessful,  unless 
he  could  demonstrate  to  the  satisfaction  of  the  Commission 
that  the  cost  of  handling  the  traffic  in  question  had  in- 
creased. According  to  the  statistics  given  by  Mr.  New- 
comb,^  the  average  rates  per  ton  upon  English  railways 
fell  from  63.8  cents  to  56.5  cents  in  the  decade  preceding 
1892,  but  only  from  56.5  cents  to  oo.'i  cents  during  the  suc- 
ceeding decade,  after  the  |X)licy  of  rate-regulation  had  been 
inaugurated,  a  decline  of  14.5  per  cent  for  the  first  period 
as  against  a  decline  of  only  2.3  per  cent  for  the  second.^ 

Another  important  objection  to  governmental  fixing  of 
railway  rates  is  that  it  would  have  a  tendency  to  destroy 
the  incentive  for  improvement  of  service  and  for  extra- 
ordinary efficiency  of  management,  such  as  obtain  under 
our  present  system.  Why  should  railroad  managers  at 
great  cost  of  effort  endeavor  to  make  further  savings  in 
the  expenses  of  operation,  if  the  additional  revenue  is  to  be 
taken  away  from  them  through  an  order  of  the  Commis- 
sion reducing  the  rates  ?  We  have  already  pointed  out  that 
it  would  be  necessary  for  the  Commission  to  take  the 
efficiency  of  management  into  consideration  in  tJie  deter- 
mination of  the  rate  of  return  which  should  be  allowed 
upon  tlie  capital  investment.  It  is  extremely  doubtful, 
however,  whether  it  would  be  willing  or  able  to  give  full 

•  W.  M.  Acworth,  Elements  of  Railuaij  Economics,  p.  158. 

'  II.  T.  Ncwcomb,  Railway  Rate-Regulation  in  Foreign   Countries, 

'  There  are  no  stitistics  published  showing  the  average  rates  per  ton- 
mile  on  the  railways  of  Great  Britain. 


84      FEDERAL  REGULATION  OF  RAILWAY  RATES 

weight  to  the  difference  between  ordinary  and  extraor- 
dinary efficiency  of  management.  The  roads  whose  affairs 
are  managed  with  ordinary  efficiency  would  probably  be 
able  to  cover  up  their  shortcomings,  and  to  obtain  the  right 
to  earn  the  same  return  as  their  more  efficient  rivals.  At 
any  rate,  such  a  road  would  complain  bitterly  of  the  in- 
justice of  allowing  any  other  road  a  higher  rate  of  return 
than  that  to  which  it  has  itself  been  declared  entitled.  On 
the  other  hand,  the  road  which  had  been  managed  with 
a  little  higher  degree  of  efficiency  would  have  difficulty  in 
proving  itself  entitled  to  a  higher  rate  of  dividends.  The 
differential  gains  resulting  from  such  efficiency  would  thus 
be  lost  through  a  reduction  of  its  rates  on  the  part  of  the 
Commission.  Wherever  there  is  no  incentive  to  special 
efficiency,  such  efficiency  will  not  be  found  to  exist.  The 
result  then  of  governmental  rate-making  would  prob- 
ably be  that  the  efforts  of  railway  managers  would  be 
diverted  from  making  savings  in  management  to  influ- 
encing the  Commission  in  order  to  prevent  a  reduction 
of  rates. 

Furthermore,  there  is  danger  that  the  Commission 
itself  might  not  always  be  influenced  by  disinterested 
motives.  No  one  would  question  the  integrity  of  the  mem- 
bers of  the  present  Commission.  But  if  that  Commission 
or  any  other  Commission  were  given  general  power  over 
rates,  the  temptations  would  become  very  great.  Aside 
from  the  danger  of  direct  bribery  by  the  railroads,  with 
their  millions  of  capital  which  might  be  used  for  that  pur- 
pose, there  are  possibilities  of  at  least  two  other  more 
insidious  evils.  First,  there  are  the  dangers  which  would 
arise  from  stock  speculation  on  the  part  of  members  of 
the  Commission,  and  secondly  and  more  important,  is  the 
absolute  certainty  that  undue  political  pressure  would 
be  brought  to  bear  upon  the  Commission  by  various  com- 
munities and  sections  of  the  country  which  are  always 
interested  in  obtaining  rates  that  are  especially  favorable 


OBJECTIONS  TO  RATE-FIXING  85 

to  themselves,  as  against  other  competing  communities  or 
sections. 

That  species  of  gambling  known  as  stock  speculation 
has  now  become  so  common  that  there  are  but  few  who 
are  not  more  or  less  concerned  in  it.  Mcml)ers  of  railway 
commissions  are  no  less  human  than  other  individuals. 
Through  their  brokers  it  would  be  possible  for  them  to 
engage  in  large  transactions  with  practically  no  danger 
of  detection.  Moreover,  every  important  case  which 
would  be  decided  by  such  a  Commission  would  have  more 
or  less  influence  upon  the  price  of  the  stock  of  the  railroad 
affected.  The  members  of  this  Commission,  having  a  few 
days'  advance  knowledge  of  the  way  in  which  a  case  in 
question  is  about  to  be  decided,  could  fairly  estimate 
what  would  be  the  effect  of  its  decision  upon  the  market 
value  of  tlie  stock  of  the  interested  railroad  as  soon  as  it 
should  be  made  public.  Is  it  not  asking  a  great  deal  of 
human  nature  to  exjiect  that  the  commissioners  will  never 
so  act  upon  the  knowledge  which  tliey  possess  as  to  turn 
it  to  their  advantage  in  secret  transactions  upon  the  stock 
market  ?  Once  the  habit  of  speculation  has  been  acquired 
by  members  of  the  Commission  —  and  as  long  as  they  can 
trade  with  the  practical  certainty  of  profit  we  have  every 
reason  to  believe  that  such  habits  will  be  acquired  —  it  is 
difficult  to  believe  that  their  decisions  would  not  be  some- 
what affected  by  their  personal  interests. 

The  cr}-  of  the  alarmist  is  never  popular,  nor  is  he  often 
taken  seriously  till  subsequent  developments  reveal  con- 
ditions even  worse  than  those  against  which  the  public 
has  been  forewarned.  It  may  be  said  that  tlie  courts  have 
long  dealt  with  problems  involving  the  interests  of  large 
coqoorations,  and  yet  no  general  charge  of  corruption  has 
been  made  against  them.  Still  it  is  seldom  the  case  tliat 
an  important  decision  affecting  cor]iorate  interests  is  not 
discounted  in  Uie  stock  market  before  it  is  made  public. 
The  same  is  true  of  nearly  ever}'  government  grain  or  cot- 


86     FEDERAL  REGULATION  OF  RAILWAY  RATES 

ton  crop  report.  Where  do  these  "insiders"  who  act  upon 
advance  news  of  such  decisions  or  reports  get  their  infor- 
mation, if  not  directly  from  those  who  are  responsible  for 
such  reports  and  decisions  ?  It  is  not  at  all  likely  that  such 
valuable  information  should  have  been  imparted  without 
compensation,  and  it  may  often  be  that  much  of  the  trading 
of  this  character  is  directly  in  behalf  of  the  government 
officials  themselves.  At  any  rate  it  is  reasonable  to  sup- 
pose that  this  is  the  case  in  view  of  the  investigations  of 
the  past  two  years,  which  have  proved  that  corruption  has 
existed  in  those  quarters  where  we  should  have  least 
expected  it.  It  is  difficult  to  conceive  of  any  situation 
which  would  offer  more  excellent  opportunities  for  such 
transactions  as  we  have  described  than  placing  the  whole 
of  the  rate-making  power  of  the  country  in  the  hands  of 
a  single  Commission.  The  property  interests  involved  in 
the  cases  that  would  come  before  this  Commission  in  a 
single  year  would  be  greater  than  that  of  all  the  cases  which 
would  come  before  the  Federal  Courts  in  a  decade. 

But  there  is  even  a  greater  problem  to  be  met  in  any 
attempt  to  fix  rates  by  a  Commission.  This  will  appear 
whenever  the  Commission  attempts  to  settle  a  differential. 
The  East  demands  a  rate  which  will  enable  it  to  compete 
with  the  South  in  the  export  trade  in  grain.  Each  section  is 
convinced  that  the  other  has  an  undue  advantage  over  it. 
How  would  it  be  possible  for  a  Government  Commission 
to  settle  such  a  dispute  without  involving  the  government 
in  all  the  unpopularity  with  which  such  rates  are  invari- 
ably received  upon  both  sides  ?  It  would  be  almost  inev- 
itable that  such  rates  should  become  a  political  issue.  Rail- 
road rates  are  able  to  make  and  unmake  great  cities. 
Witness  the  conflict  which  Philadelphia  waged  with  New 
York  for  a  share  in  the  export  trade.  Such  diverging  in- 
terests appear  in  almost  every  rate.  Any  low  rate  extended 
to  one  section  means  a  comparative  disadvantage  to  some 
other  section  of  the  country  which  competes  with  it.  The 


OBJECTIONS  TO  RATE-FIXING  87 

low  rates  on  agricultural  products  from  the  West  result 
in  the  destruction  of  the  value  of  Eastern  agricultural 
property.  Whenever  a  political  body  is  given  the  power 
to  make  rates,  all  the  influenc-c  of  established  industries  is 
brouglit  to  bear  to  prevent  the  extension  of  such  rates  as  will 
build  up  competing  industries  elsewhere,  or  if  that  tribunal 
has  not  the  power  to  name  a  minimum  or  absolute  rate, 
they  try  to  obtain  rates  for  themselves  which  are  enough 
lower  than  those  extended  to  their  competitors  so  that  they 
are  able  to  maintain  the  existing  differentials  and  relative 
advantages. 

Under  the  present  system,  such  questions  are  settled  by 
the  forces  of  competition  and  compromise  between  rail- 
roads. This  may  at  times  lead  to  changes  in  the  existing 
trade-routes,  perhaps  to  the  great  disadvantage  of  certain 
vested  interests,  but  it  results  in  gi^'ing  to  the  American 
farmer  the  benefit  of  the  lowest  possible  rates  to  the  world's 
markets. 

This  point  has  already  been  so  thoroughly  treated  by 
various  writers  that,  while  we  consider  it  perhaps  the 
most  important  objection  to  government-made  rates,  we 
will  pass  it  by  with  a  bare  notice.  Professor  H.  R.  Meyer 
has  produced  e\'idence  which  proves  beyond  all  reasonable 
doubt  that  the  system  of  government  rate-making  has 
had  a  most  pernicious  effect  upon  the  development  of  the 
industries  of  Europe  and  Australia. 

In  Germany,  sectional  conflicts  have  prevented  the 
extension  of  low  rates  to  points  where  industries  could  be 
developed,  and  the  traflSc  greatly  increased.  Points  pos- 
sessing the  advantages  of  water  communications  have 
a  tremendous  advantage  over  other  points  which  can  be 
reached  only  by  rail.  The  government  has  steadilv 
refused  to  make  rates  that  would  enable  the  railways  to 
compete  with  tiie  river  and  canal  routes.  Important 
treaties  and  laws  have  been  opposed  by  delegates  of  some 
of  the  Western  States,  in  order  to  force  the  government  to 


88     FEDERAL  REGULATION  OF  RAILWAY  RATES 

withdraw  certain  low  rates  which  had  been  extended  in 
order  to  enable  the  grain  of  the  more  distant  sections  to 
move  westward  by  rail,  and  thus  to  supply  the  Western 
manufacturing  centres  with  this  much-needed  commodity. 
The  Western  agricultural  interests  were  determined  to 
leave  no  stone  unturned  to  prevent  this  outcome,  and 
unfortunately  they  were  only  too  successful. 

In  France,  no  railroad  may  raise  or  lower  a  rate  without 
the  consent  of  the  Commissioner  of  Railways.  The  various 
railways  are  compelled  to  maintain  rates  at  least  twenty 
per  cent  higher  than  those  of  the  water  routes.  The 
guarantee  of  a  high  rate  of  dividends  upon  the  stock  of  the 
railroads  has  proved  most  expensive  to  the  government 
and  conducive  to  lax  management  on  the  part  of  the  rail- 
roads. 

In  Russia,  the  landowning  aristocracy  of  the  west  has 
brought  such  political  influence  to  bear,  that  even  an 
autocratic  government  could  not  resist  it,  and  the  Minister 
of  Railways  was  compelled  to  withdraw  rates  on  grain 
which  had  enabled  the  cereal  products  of  Siberia  to  find 
an  outlet  upon  the  Black  and  the  Baltic  Seas.  At  present 
the  rate  per  ton-mile  on  Siberian  grain  which  moves  1000 
miles  and  upward  is  higher  by  at  least  75  per  cent  than  the 
rate  per  ton-mile  for  much  shorter  distances  in  Western 
Russia.  The  only  port  which  the  products  of  Siberia  can 
now  reach  is  Archangel,  which  is  frozen  up  for  the  greater 
part  of  the  year. 

In  Australia,  the  tremendous  influence  of  the  great 
seaboard  cities  has  been  brought  to  bear  upon  the  gov- 
ernment to  prevent  the  building  up  of  interior  distributing 
centres.  This  object  is  accomplished  by  means  of  enforc- 
ing a  uniform  system  of  tapering  rates.  The  only  import- 
ant inland  cities  in  Australia  are  those  which  have  been 
built  up  at  the  terminals  of  the  railways,  where  a  break 
in  transportation  occurs.  But  as  soon  as  the  railroad  is 
extended  beyond  that  point  such  cities  invariably  lose  their 


OBJECTIONS  TO  RATE-FIXING  89 

business  to  the  larger  distributing  centres  on  the  coast. 
Thus  the  city  of  Ballarat  had  attained  considerable  im- 
portance l)y  virtue  of  its  situation  at  the  head  of  one  of  the 
railways,  but  as  soon  as  the  railway  was  built  further  into 
the  interior,  that  city  was  unable  to  obtain  rates  which 
would  enable  it  to  compete  on  even  terms  with  the  sea- 
board cities,  the  result  being  that  its  business  was  practi- 
cally destroyed.  If  the  Australian  railways  had  been  under 
private  control,  the  merchants  of  Ballarat  would  have 
gone  to  them  and  asked  for  rates  which  would  have 
enabled  them  to  remain  in  business,  and  there  is  every 
probability  that  their  petition  would  have  been  favorably 
received  by  the  railroads.  But  since  the  responsibility  for 
the  rates  lay  with  the  government,  it  was  found  impossible 
to  obtain  reasonable  concessions  against  the  strenuous 
political  opposition  of  the  great  seaboard  cities.' 

If,  then,  we  consider  carefully  the  many  objections  to 
a  system  under  which  final  responsibility  for  rates  rests 
with  the  government  rather  than  with  the  railroads  them- 
selves, and  the  limited  scope  in  which  government  regu- 
lation is  advantageous,  we  must  conclude  that  the  least 
governmental  interference  which  will  secure  desired  ad- 
vantages is  preferable  to  any  system  granting  broad  far- 
reaching  powers,  the  exercise  of  which  will  inevitably  be 
attended  with  such  evils  as  have  been  described. 

'  For  a  full  discussion  of  this  subject,  see  H.  R.  Meyer,  Government 
Regulation  of  Railway  Rates,  chapters  i  to  viii.  Also  a  series  of  articles 
by  the  same  author  in  the  Railway  Age  for  1903, 


CHAPTER   IV 

THE    INTERSTATE  COMMERCE  ACT  AND  ITS  INTERPRETATION 
BY   THE  COMMISSION   AND    BY   THE   COURTS 

The  Federal  Government  was  slow  to  exercise  its  un- 
doubted right  to  regulate  interstate  commerce.  The  early 
theory  was  that  Congress  and  the  states  exercised  con- 
current jurisdiction  over  this  subject,  and  that  the  states 
might  therefore  make  whatever  regulations  they  saw  fit, 
provided  that  they  did  not  discriminate  against  goods 
from  other  states.  In  the  case  of  Livingston  vs.  Ingen, 
decided  in  1812,  it  was  held  that  in  the  absence  of  any  Act 
of  Congress  to  the  contrary  the  State  of  New  York  law- 
fully granted  a  monopoly  of  steamboat  transportation 
upon  the  Hudson  River  for  a  period  of  twenty  years. 

In  the  subsequent  case  of  Gibons  vs.  Ogden,*  the  Su- 
preme Court  of  the  United  States  held  that  the  Act  of  the 
Legislature  of  New  York  was  invalid,  so  far  as  it  prohib- 
ited the  navigation  of  steam  vessels  possessing  a  license 
to  engage  in  the  coasting  trade,  under  a  general  Act  of 
Congress.  The  court  strongly  asserted  that  the  authority 
of  Congress  over  interstate  and  foreign  commerce  was 
supreme.  This  right  to  regulate  interstate  commerce  was 
held  to  include  the  right  to  regulate  navigation,  and  the 
transportation  of  goods  from  one  state  to  another,  as  well 
as  the  buying  and  selling  of  commodities. 

In  spite  of  the  broad  grounds  upon  which  this  decision 
was  based,  and  of  its  strong  assertion  that  the  power  of 
Congress  over  interstate  commerce  was  supreme,  even  to 
the  exclusion  of  concurrent  jurisdiction  by  the  states,  the 
theory  still  prevailed  that  wherever  Congress  had  not 
1  9  Wheaton,  1. 


THE  INTERSTATE  COMMERCE  ACT  91 

acted,  the  states  might  make  whatever  regulations  they 
saw  fit.  The  result  was  that  when  railroads  began  to  be 
built,  and  a  large  amount  of  tjirough  traffic  was  developed, 
it  was  believed  that  state  regulation  would  be  sufficient 
for  any  control  which  was  then  deemed  necessarj'. 

In  Reading  Railway  vs.  Pennsylvania,*  this  theory,  so 
far  as  it  applied  to  the  exercise  of  the  power  of  taxation 
over  interstate  commerce  on  Uie  part  of  the  states,  was 
exploded.  The  law  of  Pennsylvania  which  imposed  a  tax 
upon  ever\'  ton  of  traffic  carried  within  the  state  was 
declared  to  be  null  and  void,  in  that  it  was  an  interference 
with  interstate  commerce  whidi  Congress  had  declared 
should  be  free.  NevertJieless,  the  theor}-  that  the  states 
had  the  right  to  impose  maximum  rates  which  might  be 
charged  on  interstate  traffic  still  remained  unquestioned. 

In  Baltimore  and  Ohio  Railroad  Company  vs.  Mary- 
land,- it  was  held  that  the  power  of  the  state  to  regulate 
the  rates  of  railway  corporations  doing  business  within  its 
limits  was  "unlimited  and  uncontrolled,"  as  far  as  the 
regulations  applied  to  traffic  originating  within  the  state, 
or  coming  into  it  from  another  state.  The  Supreme  Court, 
therefore,  uj)held  an  Act  of  the  Legislature  of  Maryland, 
which  set  a  maximum  passenger  fare  of  $2.50  from  Balti- 
more to  Washington,  and  which  also  imposed  a  tax  of 
20  j)er  cent  upon  ever\-  fare  collected  between  those  points. 
The  only  reservation  which  the  court  made  as  to  tlie  power 
of  the  states  to  regulate  interstate  commerce  was  as  follows: 

Should  any  such  system  of  exactions  be  established  in  these 
states  as  to  materially  impede  the  passage  of  produce  from  one 
part  of  the  countrj'  to  another,  it  is  hardly  to  be  supposed  that 
it  is  a  casus  omissus  of  the  Constitution. 

Thus  in  the  opinion  of  the  Supreme  Court  at  that  time. 
Congress  possessed  only  a  shadowy  authority  to  regulate 
interstate  rates,  while  the  power  of  the  states  to  make 
such  regulations  was  "  undoubted  and  unlimited." 
»  15  Wallace,  232  (1872).  '  21  WaUace,  456  (1874). 


92      FEDERAL  REGULATION  OF  RAILWAY  RATES 

In  1876,  in  the  case  of  Peik  vs.  The  Chicago  and  North- 
western/ the  Supreme  Court  reaffirmed  the  same  doctrine. 
It  was  held  in  this  case  that  the  action  of  the  Legislature 
of  Illinois  in  .regulating  the  rates  and  fares  from  points 
within  the  state  to  points  outside,  and  from  points  in  other 
states  to  points  within  the  state,  was  a  valid  exercise  of 
the  constitutional  powers  of  a  state. 

It  was  not  till  the  year  1885,  in  the  case  of  the  Wabash 
Railroad  vs.  Illinois,^  that  this  doctrine  was  clearly  over- 
ruled, once  and  for  all.  It  was  then  held  that  the  power 
of  Congress  was  exclusive,  that  in  the  very  nature  of 
the  railroad  industry,  concurrent  jurisdiction  was  an  an- 
omaly, and  that  the  law  of  Illinois  establishing  maximum 
rates  from  Chicago  to  points  outside  the  state  was  null 
and  void. 

But  even  while  it  was  believed  that  the  states  possessed 
concurrent  jurisdiction  over  the  subject  of  interstate  com- 
merce, state  laws  proved  wholly  inadequate  to  meet  the 
abuses  which  arose  in  connection  with  a  great  and  grow- 
ing national  transportation  system.  In  fact,  whatever 
action  was  taken  by  the  various  states  was  practically 
confined  to  the  regulation  of  commerce  wholly  intrastate. 
On  the  other  hand,  since  the  Federal  Government  knows 
no  common  law,  and,  as  Congress  had  so  far  passed  no 
Act  for  the  regulation  of  interstate  railway  transportation, 
the  result  was  that  interstate  traffic  was  not  regulated  at 
all,  and  the  carriers  made  whatever  rates  they  saw  fit. 

The  testimony  taken  by  the  Hepburn  Committee  of 
Investigation,  appointed  by  the  Legislature  of  the  State  of 
New  York,  clearly  showed  that  previous  to  the  passage 
of  the  Interstate  Commerce  Act  railway  rates  were  in 
a  thorough  state  of  demoralization.  Many  traders  testified 
that  they  never  knew  from  one  day  to  the  next  what  rate 
they  would  be  compelled  to  pay.  Here  is  the  evidence  of 
one  merchant: 

»  94  U.  S.  164.  2  118  U.  S.  557. 


THE  INTERSTATE  COMMERCE  ACT  93 

Q.  In  every  instance  when  you  ship  from  the  west,  do  you 
make  a  special  contract  ? 

A.  Always. 

Q.  You  never  confine  yourself  to  schedule  rates  ? 

A.  We  know  nothing  about  them;  I  never  saw  a  schedule 
rate;  I  know  nothing  about  that. 

Q.  How  long  have  you  been  in  business  ? 

A.  Twenty  years,  more  or  less. 

Q.  And  during  those  twenty  years,  you  have  never  known 
anything  of  schedule  rates  ? 

A.  I  have  been  in  this  country  since  1866,  and  have  never 
known  anything  of  schedule  rates  and  never  saw  a  schedule 
rate. 

The  evidence  before  this  Committee  also  showed  that 
by  far  the  larger  proportion  of  the  business  of  the  State  of 
New  York  was  done  at  discriminatory  rates.  Five  firms  at 
Binghampton  received  special  rates  averaging  less  than 
half  the  rates  paid  by  the  rest  of  the  public.  At  Utica 
three  drapery  firms  obtained  a  rate  of  nine  cents,  while 
the  rate  on  similar  articles  for  all  others  was  thirty-three 
cents.  Five  grocery  firms  at  Syracuse  received  a  special 
rate  of  ten  cents,  while  the  published  charges  ranged  from 
eighteen  to  thirty-seven  cents.  In  many  cases  it  was 
proved  that  special  rates  had  been  accorded  amounting 
to  less  than  one  fifth  of  the  regular  published  charges. 
Mr.  Goodman,  Assistant  General  Freight  Agent  of  the 
New  York  Central,  testified  that  to  his  certain  knowledge 
fifty  per  cent  of  the  business  from  New  York  to  other 
points  and  ninety  per  cent  of  Uie  business  at  Syracuse 
was  done  at  special  rates.  He  stated  further  that  there 
were  no  important  points  where  some  shippers  were  not 
accorded  special  rates  far  below  the  published  charges. 

Under  conditions  such  as  these  it  is  not  to  be  wondered 
at  that  there  soon  arose  a  strong  demand  for  public  control 
of  interstate  rates  through  the  agency  of  the  Federal  Gov- 
ernment. In  1873  a  select  committee  of  the  House  was 
appointed  to  investigate  the  alleged  abuses  in  connection 


94     FEDERAL  REGULATION  OF  RAILWAY  RATES 

with  interstate  transportation.  This  Committee,  under  the 
chairmanship  of  Mr.  Windom,  reported  that  there  were 
three  leading  abuses  which  demanded  a  remedy  through 
Federal  legislation.  These  were,  (1)  the  neglect  of  railways 
to  furnish  proper  facilities  and  safety  appliances,  (2)  unjust 
discriminations  between  localities  and  individuals,  and 
(3)  extortionate  rates.  The  principal  causes  of  the  ex- 
cessive charges  of  the  railroads  were  alleged  to  be  stock 
watering,  the  capitalization  of  surplus  earnings,  bogus 
construction  rings,  extravagance  and  corruption  in  man- 
agement, and  combinations  between  railroads.  The  Com- 
mittee were  of  the  opinion  that  competition  would  not 
correct  the  existing  evils,  and  recommended:  first,  direct 
regulation  of  interstate  commerce  by  Congress,  secondly, 
a  system  of  government  roads  to  compete  with  the  private 
lines,  and  finally,  the  improvement  of  the  waterways. 
This  report  was  adopted  and  discussed  by  the  House,  and 
an  Act  embodying  some  of  its  proposals  was  brought  for- 
ward, but  it  failed  to  become  a  law. 

In  1878  another  attempt  was  made  to  pass  a  law  for 
the  purpose  of  regulating  interstate  commerce.  The 
Reagan  Bill,  which  was  proposed  at  that  time,  contained 
many  of  the  features  of  the  present  Interstate  Commerce 
Law,  except  that,  instead  of  creating  a  special  commission 
for  the  enforcement  of  the  proposed  law,  it  lodged  this 
power  with  the  courts.  It  was  not  till  the  year  1887,  how- 
ever, that  a  bill  of  this  character  finally  passed  both 
Houses  and  became  a  law.  We  shall  not  attempt  to  enter 
into  a  history  of  the  passage  of  this  law,  nor  shall  we  discuss 
the  interesting  report  of  the  Senate  Committee  of  1886 
out  of  which  it  sprang,  but  as  the  provisions  of  the  Act 
itself  and  their  subsequent  interpretation  are  of  vital 
interest  to  our  subject,  they  will  be  briefly  enumerated. 

Section  1.  This  section  renders  the  Act  applicable  to 
all  common  carriers  engaged  in  the  transportation  of 
property  or  persons  for  hire,  either  wholly  or  partly  by 


THE  INTERSTATE  COMMERCE  ACT  95 

rail/  from  one  state  to  another,  or  from  one  state  to  aforeign 
country.  It  provides  that  all  charges  for  such  services  shall 
be  reasonal)le  and  just.^ 

Section  2.  The  charges  for  similar  and  contempora- 
neous services  must  be  the  same  to  all  persons. 

Section  3.  It  is  made  unlawful  for  any  common  car- 
rier to  give  undue  preference  or  advantage  to  any  person, 
locality,  or  description  of  traffic. 

Section  4.  Carriers  are  forbidden  to  charge  more  for 
the  shorter  than  for  the  longer  distance,  over  the  same 
line,  in  the  same  direction,  where  the  conditions  are  sub- 
stantially similar.  The  Commission  is  authorized  to  make 
exceptions  to  the  application  of  this  clause,  after  due 
investigation. 

Section  5.  All  agreements  for  pooling  traffic  or  earn- 
ings and  combinations  for  the  maintenance  of  rates  are 
declared  unlawful. 

Section  6.  Rate  schedules  must  be  printed  and  open 
for  public  inspection.  Ten  days'  notice  is  required  before 
any  advance,  and  three  days'  notice  before  any  reduction 
of  a  rate.  It  is  made  unlawful  to  collect  more  than  the 
published  charges  for  a  given  service.  Carriers  must  file 
their  rate  schedules,  and  notices  of  all  changes  in  the 
tariffs,  with  the  Commission,  together  with  all  contracts 

'  The  Hepburn  Act  as  it  Bnally  became  a  law  includes  pipe-lines, 
private  car  lines,  refrigerator  comi>anies  engaged  in  icing  cars,  express 
companies,  and  sleeping-car  companies. 

'  Other  imixirtant  amendments  fo  this  section  as  expressed  in  the  final 
draft  of  the  Hepburn  Act  are  as  follows: 

Giving  or  accepting  passes  is  strictly  prohibited  under  penaltj'  of  fines 
ranging  from  !jl(K)  to  !?'i(H)0.  Exc-eption  is  made  for  juisses  given  railway 
emnioyees,  and  their  families,  or  for  charitable  or  public  purjwses.  On 
and  after  May  1,  1908,  railroads  are  forbidden  to  transport  any  property 
oilier  than  timlier  which  may  have  lieen  produced  by  them,  or  in  which 
they  may  possess  any  interest,  direct  or  indirect,  except  such  property 
as  may  be  intended  for  their  use  as  common  carriers. 

Common  carriers  are  required  to  make  connection  with  lateral  branch 
lines,  and  private  switches,  and  to  give  impartial  service  to  the  applicant, 
whenever  the  construction  of  the  pro|K>so<i  connection  is  practicable 
and  the  amount  of  traffic  which  can  be  secured  at  the  given  point  is 
sufficient  to  justify  the  construction  of  such  facilities. 


96     FEDERAL  REGULATION  OF  RAILWAY  RATES 

and  agreements  with  other  carriers  relating  to  the  traflBc 
affected  by  the  Act.  The  Commission  is  given  the  power  to 
prescribe  the  measure  of  pubhcity  which  must  be  given 
to  joint  tariffs.^ 

Section  7.  Combinations  to  prevent  the  continuous 
carriage  of  freight  to  its  final  destination  are  prohibited. 

Section  8.  Any  person  injured  by  any  unlawful  act 
of  the  carrier  may  recover  damages,  costs,  and  attorney's 
fee. 

Section  9.  The  injured  person  may  complain  before 
the  Interstate  Commerce  Commission,  or  before  the  United 
States  Circuit  Court,  and  the  officers  of  a  railroad  may  be 
compelled  to  testify  and  produce  books,  but  such  evidence 
cannot  be  used  against  the  person  giving  it  in  any  sub- 
sequent criminal  proceedings. 

Section  10.  The  penalty  for  the  violation  of  any  of  the 
foregoing  provisions  falls  upon  the  officers  and  agents  of 
the  railroad.  The  fine  for  each  offense  is  not  to  exceed 
$5000,  or  two  years'  imprisonment,  or  both.  The  term  of 
imprisonment  is  to  be  added  only  in  case  the  offense  is 


*  This  section  was  so  amended  in  the  Hepburn  Act  as  to  require  the 
publication  and  fiUng  of  all  joint  rates,  whenever  made.  All  icing  and 
terminal  charges,  together  with  such  other  charges  as  the  Commission 
may  direct,  must  be  published  separately. 

Thirty  days'  notice  is  required  for  any  change  in  the  published  rates, 
except  that  the  Commission  is  given  the  authority  to  modify  this  pro- 
vision upon  good  cause,  either  in  particular  instances,  or  by  a  general 
order  applicable  to  special  or  peculiar  circumstances. 

The  common  carrier  must  file  a  copy  of  all  contracts  and  agreements 
entered  into  with  other  carriers  relating  to  any  traffic  affected  by  the  Act. 
A  carrier  is  prohibited  from  charging  a  greater  or  less  or  different  com- 
pensation from  that  which  is  named  in  the  published  tariffs. 

Section  1  of  the  Elkins  Act  of  1903  was  so  amended  as  to  make 
corporations  criminally  liable  for  the  illegal  acts  of  their  agents.  A  fine 
of  from  $1000  to  $2000  is  imposed  for  every  case  of  unjust  discrimination 
between  shippers.  Similar  fines  are  imposed  for  soliciting  or  accepting 
rebates,  or  other  concessions  from  the  published  tariffs.  The  agent  or 
officer  of  the  corporation  giving  or  receiving  such  rebates  or  unlawful 
preferences  may  be  imprisoned  for  a  term  not  to  exceed  two  years,  while 
the  shipper  receiving  the  same,  in  addition  to  the  other  penalties  named, 
may  be  required  to  pay  a  fine  equal  to  three  times  the  total  amount  so 
received,  during  the  six  years  immediately  preceding  conviction. 


THE  INTERSTATE  COMMERCE  ACT  97 

a  discrimination  forbidden  by  law.  Any  person  receiving 
a  rebate  or  discriminatory  rate,  with  the  connivance  of  the 
carriers,  or  without  such  connivance  through  false  repre- 
sentations, may  also  be  subjected  to  a  fine  of  $5000  and 
two  years'  imprisonment. 

Section  11.  A  commission  to  be  composed  of  five  mem- 
bers is  to  be  appointed  by  the  President,  with  the  advice 
and  consent  of  the  Senate.  Not  more  than  three  com- 
missioners are  to  be  appointed  from  tlie  same  political 
party.  The  term  of  office  is  six  years,  but  tlie  President  may 
at  any  time  remove  any  commissioner  for  inefficiency, 
neglect,  or  malfeasance  of  office.* 

Section  12.  The  Commission  is  granted  the  power 
of  subpoena.-  Self-incriminator}-  testimony  must  be  given, 
but  such  testimony  may  not  be  used  in  the  prosecution  of 
the  one  giving  it. 

Section  13.  In  case  of  complaint  with  respect  to  any 
alleged  excessive  or  unjust  rate,  the  Commission  should 
first  use  its  good  offices  to  effect  a  settlement  without  a 
formal  hearing. 

Section  14.  The  reports  of  the  formal  proceedings  of 
the  Commission  should  include  the  findings  of  fact  and 
the  recommendations  made  by  the  Commission.  Its 
findings  of  fact  are  to  be  prima  facie  evidence  in  all  sub- 
sequent judicial  proceedings.  The  reports  are  to  be 
printed. 

Section  15.  The  carrier  must  comply  with  the  order 
of  the  Commission  within  a  specified  term. 

Section  16.  When  the  carrier  refuses  to  obey,  the 
Commission  or  any  other  interested  party  may  apjily  to 
tlie  circuit  court  for  an  injunction  compelling  obedience. 

'  The  new  rate  law  wliich  went  into  effect  August  -28,  190(5,  provides 
that  the  nnraber  of  Commissioners  shall  be  increased  to  seven,  the  term 
of  office  made  seven  years,  while  the  salarj'  is  raised  to  $10,000  jx>r  annum. 

*  The  Commission  has  no  jwwer  to  enforce  the  giving  of  testimony, 
which  it  may  lawfully  re<juire.  except  through  an  order  of  a  duly  con- 
stituted court .  This  fact  has  often  been  the  source  of  tedious  delays  and 
much  annoyance. 


98     FEDERAL  REGULATION  OF  RAILWAY  RATES 

An  appeal  is  allowed  to  the  Supreme  Court,  if  the  amount 
in  question  exceeds  $2000.  The  appeal  does  not  stop  the 
lower  court  from  collecting  costs  and  fines,  though  the 
fines  would  have  to  be  held  in  escrow  till  the  final  decision. 
The  court  may  assess  a  fine  of  $500  per  day  for  a  refusal 
on  the  part  of  the  railroad  to  obey  the  order  of  the  Com- 
mission. 

Section  17.  The  Commission  is  to  proceed  at  discre- 
tion. No  Commissioner  may  sit  upon  a  case  in  which  he 
is  personally  interested. 

Sections  18  to  21.  The  salary  of  the  Commissioners 
is  to  be  $7500  per  year.  The  expenses  of  the  proceedings 
are  defrayed  by  the  United  States.  The  principal  office  is 
to  be  in  Washington,  but  the  Commission  may  sit  else- 
where. The  Commission  may  require  annual  and  uniform 
accounts  from  the  railroads,  and  it  is  to  make  an  annual 
report. 

Section  22.  The  Act  does  not  apply  to  the  handling  of 
property  free  or  at  reduced  rates  for  the  United  States 
Government,  or  for  state  or  municipal  governments.  It 
does  not  apply  to  the  handling  of  property  at  reduced 
rates  for  charitable  purposes,  or  to  property  which  is  being 
shipped  to  or  from  fairs  and  expositions.  It  does  not  apply 
to  the  carriage  of  railway  employees  free  or  at  reduced 
rates,  or  to  special  concessions  to  ministers  of  religion,  or  to 
inmates  of  state  or  national  houses,  or  to  the  granting  of 
mileage,  excursion,  or  commutation  tickets.^ 

*  The  following  important  changes  were  made  in  the  Hepburn  Act 
as  it  was  finally  passed,  June  29,  1906: 

It  is  made  the  duty  of  the  Commission  after  investigation,  upon  com- 
plaint, whenever  it  is  of  the  opinion  that  certain  charges  or  practices  of 
a  carrier  are  extortionate,  unreasonable,  or  unduly  discriminatory,  to 
prescribe  what  shall  be  the  maximum  rate  or  rule  of  action  for  the  future. 
The  order  is  to  go  into  effect  after  the  expiration  of  thirty  days  from  the 
date  of  issue.  If  the  carrier  refuses  to  obey,  the  Commission  may  enforce 
its  order  in  any  duly  constituted  court  having  jurisdiction.  The  court  is 
bound  to  enforce  the  order  of  the  Commission  by  summary  process, 
mandatory  or  otherwise,  whenever  such  order  has  been  found  to  have 
been  "regularly  made  and  duly  sers'ed."  A  fine  of  $5000  per  day  may 


THE  INTERSTATE  COMMERCE  ACT  99 

Now  with  the  Act  before  us,  let  us  follow  its  subsequent 
inteq)retation  by  the  Commission  and  by  the  courts.  In 
order  to  guard  against  the  possibility  of  giving  a  ])artial 
or  unfair  discussion  of  the  subject,  we  shall  take  up  all  the 
cases  where  the  Commission  has  applied  to  the  court  for 
the  enforcement  of  an  order  regarding  changes  in  the  pub- 
lished rates.  It  is  impossible  to  differentiate  the  cases 
clearly  with  regard  to  their  subject-matter,  for  many  of 
them  involve  several  points.  We  have  grouped  them, 
tlicrefore,  with  regard  to  what  seemed  to  \ie  the  most 
important  point  at  issue  in  the  particular  case.  By  far  the 
largest  group  is  that  in  which  was  involved  tlie  inter- 
pretation of  the  long  and  short  haul  clause  of  the  fourth 
section  of  the  Act. 

THE   SAN    BERNARDINO   CASE 

The  San  Bernardino  Board  of  Trade  vs.  A.  T.&  S.  F.  et  al} 

The  rates  from  Eastern  points  to  San  Bernardino,  Cali- 
fornia, were  considerably  higher  than  those  in  force  to 
Los  Angeles,  which  was  situated  at  the  greater  distance. 
The  Commission  held  as  follows: 

be  imposed  for  continued  violation  of  the  order  of  the  Commission.  The 
order  remains  in  force  for  such  time  as  the  Commission  shall  designate, 
not  exceeding  two  years. 

In  specific  cases  the  Commission  may  award  damages  to  the  com- 
plainant. These  awards  may  he  recovered  by  ordinary  legal  nrocess. 
The  findings  of  the  Commission  in  such  cases  are  considered  prima 
jarie  evidence.  The  cost.s  of  such  cases  are  liorne  by  the  I'nited  States, 
unless  the  petitioner  carries  his  case  to  a  higher  court  upon  appeal,  in 
which  case  he  is  ret]uired  to  ray  the  costs  of  the  apf)eal.  In  c-ase  the 
complainant  finally  prevails,  tne  entire  costs  of  the  ca.se,  together  with 
a  rea.sonable  attorney's  fee,  must  be  paid  by  the  defendant  railroad. 

The  carrier  may  appeal  to  the  circuit  court  ha\'ing  juristliction  for 
temporarj'  or  permanent  injunction  to  prevent  the  enforcement  of  the 
order  of  the  Commi.ssion.  No  temporar\'  injunction  may  be  issued,  how- 
ever, except  upon  hearing  after  five  days'  notice  to  the  Commi.ssion. 
An  ai^ix'ul  from  such  decree  or  injunction  lies  only  to  the  Supreme  Court, 
where  the  K\|)editing  .\ct  of  1903  applies,  and  the  ca.st>  hikes  precedence 
over  all  others,  except  criminal  ca.ses  and  those  of  a  like  character. 

Other  important  provisions  of  the  Hepburn  Act  have  been  referred  to 
elsewhere.    See  notes,  pp.  S9,  49,  oi.  9.5,  96,  97. 

'  4  I.  C.  C.  Rep.  104,  1890;  50  Fed.  Rep.  265,  1892. 


100    FEDERAL  REGULATION  OF  RAILWAY  RATES 

The  complaint  in  itself  is  sufficient  to  put  the  carriers  on  proof 
that  the  services  were  rendered  under  such  circumstances  as  to 
justify  the  greater  charge.  .  .  .  The  water  competition  which 
will  justify  a  greater  charge  for  a  shorter  distance  must  be 
actual,  and  not  potential. 

Since  it  did  not  appear  that  there  was  actual  water 
competition  with  respect  to  the  commodities  the  rates 
upon  which  were  complained  of,  the  Commission  ordered 
that  the  rates  to  San  Bernardino  should  be  reduced  to  the 
extent  that  they  should  not  exceed  the  rates  to  Los  Angeles. 

The  Circuit  Court,  however,  found  the  facts  widely 
different  from  those  set  forth  in  the  report  of  the  Com- 
mission. New  evidence  was  offered  by  the  railroad  before 
the  court,  tending  to  show  that  there  was  actual  compe- 
tition between  the  rail  and  water  carriers  with  respect 
to  those  commodities  mentioned  in  the  petition.  Accord- 
ingly the  order  of  the  Commission  was  not  sustained. 

A  few  years  later  the  same  point  came  before  the  Com- 
mission in  another  connection.^  In  that  case  the  Com- 
mission, while  justifying  the  lower  charge  to  Los  Angeles 
by  reason  of  the  water  competition  existing  at  that  point, 
uttered  a  dictum  which  has  been  the  source  of  some  of  the 
bitterest  attacks  against  it,  but  a  dictum  which  in  a  broad 
way  is  not  supported  by  the  actual  decisions  of  the  Com- 
mission. Speaking  of  the  competition  of  the  northern 
routes  with  the  Southern  Pacific  and  the  Santa  Fe  for  the 
trade  of  Los  Angeles,  the  Commission  remarked  as  follows : 

Merchandise  by  these  rail  and  water  routes  to  Los  Angeles 
must  be  transported  by  rail  across  the  continent,  transshipped 
and  carried  twelve  hundred  miles  by  ocean,  and  again  trans- 
shipped for  another  twenty  miles'  haul  by  rail,  before  it  reaches 
Los  Angeles  in  competition  with  the  Southern  Pacific  and  the 
Santa  Fe  railways.  While  traffic  may  be,  and  at  times  actually 
is,  carried  by  such  circuitous  rail  and  water  routes,  it  is 
questionable  whether  it  ought  to  be,  and  the  Commission  does 

1  Holdskom  vs.  M.  C.  Ry.  Co.  et  al.,  9  I.  C.  C.  Rep.  42. 


THE  INTERSTATE  COMMERCE  ACT         101 

not  hold  in  this  case  that  such  competition  in  itself  justifies  a 
higher  rate  at  an  intermediate  point  such  as  San  Bernardino 
than  is  enforced  from  the  East  to  Los  Angeles. 

From  this  dictum  it  is  argued  that  the  Commission,  if 
it  had  the  power,  would  seek  to  determine  by  which  of 
several  competing  routes  traffic  might  lawfully  move.  It 
must  Ije  borne  in  mind,  however,  tliat  this  dictum  is  merely 
a  reservation  on  tlie  part  of  the  Commission  in  order  to 
avoid  a  dangerous  precedent.  The  case  was  decided 
against  the  complainant  upon  other  grounds.' 

THE    FARGO   SUGAR   CASE 
E.  M.  Raivorth  vs.  Northern  Pacific  Railway  et  al? 

The  rate  on  sugar  from  San  Francisco  to  St.  Paul  was 
sixty -five  cents  per   100  lbs.,  while  the  rate  to  Fargo, 

'  A  case  where  the  order  of  the  Commission,  if  it  had  been  enforced, 
would  have  indirectly  resulted  in  the  exclusion  of  the  more  circuitous 
route  from  a  share  in  the  traffic,  is  that  of  the  Boston  and  Albany  R.  R. 
Co.  vs.  The  Boston  and  Lowell  R.  R.  Co.  et  al.  1  I.  C.  C.  Rep.  158. 
See  also  H.  R.  Meyer,  Government  Regulation  of  Railway  Rates,  pp.  351  ff. 
The  decision  in  this  ca.se  has  been  strongly  criticised  by  various  authors, 
especially  by  Mr.  H.  R.  Meyer.  The  evidence  showed  that  the  road 
possessing  the  more  circuitous  route  could  not  compete  for  the  through 
traffic  without  charging  less  than  it  could  well  afford  to  certain  inter- 
mediate points,  providuig  it  were  compelled  to  abide  by  the  long  and 
short  haul  provision.  The  Commission  fully  recognized  the  difficulties 
of  the  situation,  and  expressly  affirmed  the  right  of  the  road  po.ssessing 
the  more  circuitous  route  to  make  rates  which  would  enable  it  to  com- 
pete for  a  share  of  the  through  business.  Nevertheless,  the  law  pro- 
hibiting a  greater  charge  for  the  shorter  distance  apjicared  to  admit 
of  no  exception  under  such  circumstances  as  these.  It  would  be  im- 
possible to  grant  the  privilege  of  departure  from  the  observ'ance  of  the 
provision  to  one  of  a  numl>er  of  (xjnipeting  roads,  while  not  at  the  .same 
time  granting  the  same  privilege  to  all.  The  Commission  doubted  the 
wisdom  of  the  law,  but  it  believed  it  to  l)e  its  duty  to  enforce  its  provisions 
regardless  of  its  own  opinion  as  to  the  wisdom  of  the  p)licy.  Accordingly 
the  carrier  was  ordered  to  cea.se  ciiarging  more  for  the  shorter  distanre.  It 
should  l)e  remenilxred,  however,  that  this  was  one  of  the  earliest  decisions 
of  tlie  Commission,  and  the  principle  upon  which  it  rested  was  expressly 
overruled  in  later  ca.ses.  (See  rulings  No.  913  and  914.  .\nnual  Iie[xirts 
of  the  Interstate  Commerce  Commission.)  In  these  cases  the  Commission 
expressly  allowed  the  roads  to  charge  less  for  the  shorter  haul,  whore  it 
was  shown  that  they  were  subject  to  the  competition  of  more  direct 
routes. 

'  5  I.  C.  C.  Rep.  234.   April,  1892. 


102    FEDERAL  REGULATION  OF  RAILWAY  RATES 

South  Dakota,  two  hundred  and  forty  miles  nearer  San 
Francisco,  was  ninety-seven  cents.  It  appeared  that  for 
a  long  time  there  had  been  a  flat  rate  of  65  cents  both  to 
St.  Paul  and  to  Fargo.  Under  these  conditions,  the  com- 
plainant had  built  up  a  profitable  sugar  business  at  Fargo, 
competing  with  the  merchants  of  St.  Paul  upon  equal 
terms  for  the  trade  of  the  intervening  territory.  When  the 
Fargo  rate  was  advanced  to  97  cents,  there  was  no  change  in 
the  rate  to  St.  Paul.  The  rate  to  Fargo  then  equaled  the 
rate  from  San  Francisco  to  St.  Paul,  plus  the  local  rate 
from  St.  Paul  back  to  Fargo.  The  complainant,  there- 
upon, found  himself  entirely  excluded  from  participation 
in  the  sugar  trade  outside  of  the  city  of  Fargo  itself.  Then, 
too,  owing  to  the  system  of  tapering  rates,  ^  which  was  in 
force  from  St.  Paul,  the  rate  from  San  Francisco  to  St. 
Paul  plus  the  local  rate  back  to  points  both  east  and  west 
of  Fargo,  was  less  than  the  rate  to  Fargo  plus  the  local 
rate  to  the  same  point.  Thus  the  entire  wholesale  trade  of 
that  section  was  transferred  from  Fargo  to  St.  Paul. 

The  Commission  found  that  the  low  rate  to  St.  Paul  was 
justified  by  the  competition  of  sugar  from  the  West  Indies, 
which  came  via  New  York.  But  it  held  that  this  sort  of 
competition  was  not  of  the  kind  which  would  create  sub- 
stantially dissimilar  conditions  within  the  meaning  of  the 
fourth  section  of  the  Act. 

At  the  time  this  case  was  decided,  the  doctrine  generally 
held  by  the  Commission  was  that  such  dissimilar  circum- 
stances could  arise  only  from  the  competition  of  water 
routes  between  the  same  points,  or  from  the  competition 
of  carriers,  not  subject  to  the  Act.  The  competition  of 
markets  was  not  considered  capable  of  producing  such 
dissimilar  circumstances. 

This  case,  when  considered  apart  from  other  decisions 
of  the  Commission,  warrants  the  severe  criticism  which 

'  A  tapering  rate  is  one  which  grows  less  per  mile  as  the  distance 


THE  INTERSTATE  COMMERCE  ACT         103 

has  been  made  upon  it  by  Mr.  H.  R.  Meyer  and  others, 
but  it  must  be  remembered  that  the  Commission  itself 
set  aside  this  inteq)retation  of  the  fourth  section  of  the  Act 
in  subsequent  cases,  and  it  has  since  that  time  frequently 
held  that  market  competition  may  produce  circumstances 
whidi  would  justify  a  carrier  in  charging  less  for  the  longer 
distance.' 

In  this  particular  case,  the  railroads  refused  to  oljey 
the  order,  and  the  Commission  appealed  to  the  courts  for 
its  enforcement,  but  the  matter  has  never  been  prosecuted 
vigorously,  and  is  still  pending. 

THE  CARTAGE  CASE 

ilary  O.  Stone  vs.  Detroit,  Grand  Haven  and  Milwaukee  Railway 
Company.^ 

This  case  resulted  from  an  alleged  violation  of  the  long 
and  short  haul  clause.  For  a  long  time  it  had  been  the 
practice  of  the  defendant  railroad  to  deliver  goods  to  the 
doors  of  the  consignees  at  Grand  Haven,  upon  consign- 
ments from  points  east  of  Detroit,  without  charge  for 
cartage.  While  the  same  rates  were  charged  to  Ionia, 
Michigan,  which  was  less  distant  over  the  same  line  from 
the  initial  points  of  shipment,  the  same  facilities  of  free 
delivery  were  not  accorded. 

The  Commission  decided  that  this  practice  amounted 
to  a  violation  of  the  long  and  short  haul  clause.  The  free 
deliver}',  which  was  accorded  at  Grand  Haven,  was  de- 
clared to  virtually  amount  to  a  concession  in  the  rate, 
equal  to  the  cost  of  that  delivery. 

The  Circuit  Court  sustained  the  order  of  the  Commis- 
sion, but  it  was  reversed  by  both  the  Circuit  Court  of 
Appeals,  and  by  the  Supreme  Court.   The  freight  station 

»  Gardner  and  Clark  vs.  Southern  Pacific  Rv.  Co.,  10  I.  C.  C.  Rep. 
542.  See  also  In  re  S.  P.  et  al..  Ruling  No.  787,  An.  Rep.  of  I.  C.  C. 
See  also  Kearney  Case.  8  I.  C.  C.  Rep.  481. 

*  3  I.  C.  C.  Rep.  613.  April,  1890.  57  Fed.  Rep.  1002,  Nov.  1891. 
74  Fed.  Rep.  803,  AprU,  1896.    167  U.  S.  633,  May,  1897. 


104    FEDERAL  REGULATION  OF  RAILWAY  RATES 

of  the  defendant  railroad  at  Grand  Haven  was  not  located 
near  the  centre  of  the  business  district.  Instead  of  pur- 
chasing an  expensive  right  of  way  into  the  heart  of  the  city, 
as  its  competitors  had  done,  the  defendant  railroad  had 
preferred  to  pay  the  cost  of  cartage  to  the  door  of  the 
consignee.  It  was  also  found  that  the  station  at  Ionia  was 
not  so  disadvantageously  located,  and  the  court  accord- 
ingly justified  the  means  which  the  railroad  had  employed 
for  reaching  the  heart  of  the  business  district  at  Grand 
Haven,  and  it  held  that  the  same  facilities  of  free  delivery 
need  not  be  accorded  at  Ionia.  Furthermore,  the  court 
pointed  out  that  the  citizens  of  Ionia  were  not  the  real 
complainants,  but  the  Michigan  Central,  the  competitor 
of  the  D.  G.  H.  &  M.  at  Grand  Haven. 

THE   MIDDLESBORO   CASE 

The  Gerke  Brewing  Company  vs.  Louisville  and  Nashville  Rail- 
road Company  et  al} 

In  this  case,  the  Commission  merely  reaffirmed  its 
earlier  construction  of  the  fourth  section  of  the  Interstate 
Commerce  Act,  i.  e.  that  competitioQ  of  carriers  subject 
to  the  Act  is  not  sufficient  in  and  of  itself  to  produce  dis- 
similar circumstances  within  the  meaning  of  the  Act.  No 
decision  was  rendered  in  this  particular  case  by  the  court, 
but  as  we  shall  see,  this  doctrine  was  overruled  by  the 
courts  in  subsequent  decisions. 

THE   SOCIAL   CIRCLE   CASE 

The  James  Meyer  Buggy  Company  vs.  Cincinnati,  New  Orleans 
&  Texas  Pacific  Railway  Company  et  al.^ 

The  rate  on  buggies  from  Cincinnati  to  Social  Circle 
was  $1.37  per  100  lbs.  The  rate  to  Atlanta  through  Social 
Circle  was  $1.07,  while  the  rate  to  Augusta,  171  miles 

1  I.  C.  C.  Rep.  593,  1893. 

M  I.  C.  C.  Rep.  744,  June,  1891.  56  Fed.  Rep.  928,  June,  1893.  162 
U.  S.  164,  March,  1896. 


THE  INTERSTATE  COMMERCE  ACT         105 

further,  was  the  same  as  that  to  Atlanta.  Moreover,  the 
rate  to  Birmingham,  Alabama,  which  was  practically  at 
the  same  distance  as  Atlanta,  was  only  eighty-nine  cents 
per  100  lbs. 

The  Commission  held  that  the  rate  to  Social  Circle 
should  not  exceed  the  rate  to  Atlanta,  and  that  the  rate  to 
Atlanta  should  not  exceed  $1.00  per  100  lbs. 

The  Circuit  Court  refused  to  sustain  the  order  of  the 
Commission  on  the  grounds  that  it  had  erroneously  in- 
teqjreted  the  word  "line,"  as  used  in  the  fourth  section 
of  the  Interstate  Commerce  Act.  The  Circuit  Court  of 
Appeals  set  aside  this  ruling,  and  held  that  there  was  no 
justification  for  a  greater  charge  to  Social  Circle  than  to 
Atlanta,  but  that  tJie  Commission  had  erred  in  fixing  the 
maximum  rate  to  Atlanta  at  $1.00.  It  was  held  that  no 
satisfactory  evidence  had  been  presented  before  the  Com- 
mission to  show  that  the  rate  of  $1.07  to  Atlanta  was 
unreasonable. 

The  Supreme  Court  sustained  the  Circuit  Court  of 
Appeals  upon  both  of  these  points,  thus  for  the  first  and 
only  time  upholding  an  order  of  the  Commission  where 
that  order  recommended  changes  in  the  published  rates  of 
carriers.  In  tliis  decision  also  there  are  strong  dicta  to  tlie 
effect  that  the  Commission  had  not  been  delegated  the 
power  to  fix  rates. 

THE  ALABAMA  MIDLAND  CASE 

Tfie  Board  of  Trade  of   Troy,  Alabama,  vs.  Alabama  Midland 
Railway  Company  et  al} 

The  rates  from  Northern  points  to  Troy,  Ala.,  are 
constructed  on  the  basis  of  the  rate  to  Montgomerj-  plus 
the  local  rate  back  to  Troy.  The  rates  from  Troy  to 
Southern  ports  equal  the  rate  back  to  Montgomer}-,  plus 
the  rates  from  Montgomerj'  to  those  ports.    The  same 

»  4  I.  C.  C.  Rep.  384,  Aur.  1893.  69  Fed.  Rep.  2«7,  July,  1895.  74 
Fed.  Rep.  715,  June,  1896.  168  U.  S.  144,  Nov.  1897. 


106    FEDERAL  REGULATION  OF  RAILWAY  RATES 

principle  of  rate-making  is  in  force  throughout  this  whole 
section,  and  local  points  in  every  instance  are  charged 
the  through  rate  to  the  nearest  competitive  point  plus 
the  local  rate  to  the  point  of  consignment. 

The  Commission  decided  that  this  practice  was  in 
violation  of  both  the  third  and  the  fourth  sections  of  the 
Act  to  regulate  commerce.  The  kind  of  competition,  which 
it  was  admitted  was  the  controlling  factor  at  Montgomery, 
was  that  of  carriers  subject  to  the  Act,  which,  in  the  opinion 
of  the  Commission,  did  not  constitute  substantially  dis- 
similar circumstances  and  conditions  within  the  meaning 
of  the  fourth  section  of  the  Act,  except  "in  rare  and  pecul- 
iar instances,"  in  which  cases  it  was  the  duty  of  the  carrier 
to  apply  to  the  Commission  for  relief.  Accordingly,  the 
Commission  ordered  a  reduction  in  the  rate  from  Northern 
points  to  Troy,  to  the  extent  that  they  should  not  exceed 
the  rates  in  force  to  Montgomery.  Moreover,  the  Com- 
mission held  that  the  refusal  on  the  part  of  the  carriers  to 
grant  a  through  rate  from  Troy  to  Southern  ports,  and  the 
granting  of  such  a  rate  to  Montgomery  and  other  cities, 
amounted  to  an  undue  preference  within  the  meaning  of 
the  third  section  of  the  Act.  A  slight  reduction  was  there- 
fore ordered  in  the  Troy  rate. 

This  decision  was  not  sustained  by  any  of  the  courts  of 
review.  It  was  held  that  the  lower  rate  to  Montgomery 
was  not  the  result  of  any  malicious  discrimination  on  the 
part  of  the  railroads.  Montgomery  was  a  large  distributing 
centre  long  before  there  were  any  railroads  in  that  section 
of  the  country.  It  was  situated  upon  a  navigable  stream 
which  brought  into  play  the  force  of  potential  water  com- 
petition. Furthermore,  the  rate  to  Montgomery  had  been 
reduced  by  the  competition  of  numerous  railroads  at  that 
point.  Contrary  to  the  ruling  of  the  Commission,  it  was 
held  that  such  competition  may  cause  substantially  dis- 
similar circumstances  within  the  meaning  of  the  fourth 
section.  The  enforcement  of  the  order  of  the  Commission 


THE  INTERSTATE  COMMERCE  ACT         107 

at  all  the  local  points  of  the  Alabama  and  Midland,  would 
either  drive  that  road  into  hankruptey,  or  compel  it  to 
give  up  its  share  of  the  Montgomery  traffic.  In  either  case, 
higher  rates  would  eventually  result,  esjiecially  if  the  road 
were  compelled  to  give  uj)  its  share  of  the  through  traffic, 
for  that  business,  though  done  upon  a  small  margin, 
nevertheless  still  allowed  of  some  profit  beyond  the  ex- 
penses of  operation. 

THE   SPOKANE    FALLS   CASE 

The  Merchants'  Union  of  Spokane  Falls  vs.  NortJiem  Pacific 
Exiilwaij  Company  el  al.' 

The  rates  to  Spokane  were  made  on  the  basis  of  the 
rate  from  Eastern  points  to  the  coast,  plus  the  local  rate 
back  to  Spokane.  The  result  of  such  an  adjustment  of 
rates  was  that  the  jobbers  of  the  coast  cities  competed  in 
the  markets  of  Spokane  with  the  jobbers  of  that  city, 
while  they  had  a  practical  monopoly  of  all  the  business  at 
points  west  of  Spokane,  and  owing  to  the  system  of  taper- 
ing rates,  they  had  a  decided  advantage  in  the  trade  with 
points  east  of  Spokane.  Such  a  situation  of  affairs  has 
frequently  been  spoken  of  by  Mr.  H.  R.  INIeycr,  and  by 
less  astute  railroad  apologists,  as  most  happy  in  that  it 
promotes  competition.  It  should  be  borne  in  mind,  how- 
ever, that  it  is  only  competition  in  the  markets  of  S})okane 
which  is  jiromoted,  while  the  entire  wholesale  business  of 
the  rest  of  the  state  is  concentrated  ujxm  tlic  coast.  It 
would  seem  that  a  better  state  of  competition  would  i)e  one 
where  each  of  these  centres,  enjoying  a  j^ractical  monopoly 
of  its  local  business,  should  compete  with  the  others  in 
su]i]>lying  the  entire  trade  outside  of  these  central  dis- 
trilniting-points. 

It  was  contended  by  the  defendants  that  the  lower  rates 
to  the  coast  were  made  necessary-  by  the  water  competition 
'  5  I.  C.  C.  Rep.  478,  1892.    83  Fed.  Rep.  249,  1897. 


108    FEDERAL  REGULATION  OF  RAILWAY  RATES 

existing  there.  It  was  found  that  there  were  some  two 
hundred  commodity  rates  in  force  to  the  coast,  which  had 
been  made  in  order  to  meet  the  water  competition  at  that 
point.  It  appeared  that  the  goods  which  were  still  carried 
at  class  rates  were  not  of  a  character  such  as  would  admit 
of  effective  water  competition,  and  the  Commission,  there- 
fore, while  justifying  the  lower  commodity  rates,  which 
covered  the  bulk  of  the  traffic  to  the  coast,  ordered  the 
reduction  of  class  rates  to  Spokane  Falls  to  the  extent  that 
they  should  not  exceed  82  per  cent  of  the  class  rate  to  the 
coast. 

This  order  was  reversed  by  both  the  Circuit  Court  and 
by  the  Circuit  Court  of  Appeals.  Apparently  the  reasons 
for  reversal  were  not  entirely  convincing,  as  the  evidence 
before  the  court  failed  to  show  that  there  was  important 
water  competition  with  respect  to  the  commodities  the 
rates  upon  which  were  affected  by  the  order.  It  was 
established,  however,  that  the  rates  to  Spokane  were 
resonable  when  considered  apart  from  the  lower  rates  to 
the  coast.* 

THE   GRIFFIN   CASE 

Brewer  and  Hanleiter  vs.  Louisville  and   Nashville  Railroad 
Company  et  al? 

The  merchants  of  the  city  of  Griffin,  Georgia,  com- 
plained that  the  rate  from  Cincinnati  to  Griffin  was  higher 
than  the  rate  from  Cincinnati  to  Macon,  a  point  more 
distant  from  Cincinnati  over  the  same  line  upon  which 
Griffin  is  situated. 

The  Commission  held  that  this  practice  was  in  viola- 

*  Since  the  passage  of  the  new  rate  law  in  June,  1906,  the  Merchants' 
Union  of  Spokane  has  again  brought  its  case  before  the  Commission, 
upon  practically  the  same  showing  of  facts  as  in  the  case  cited  above. 
It  will  be  extremely  interesting  to  note  whether  the  Commission  will 
adhere  to  its  former  ruling  in  the  case,  and  if  so,  whether  the  courts  can 
find  any  grounds  under  the  new  law  by  which  they  may  now  overrule  the 
Commission  in  this  matter. 

2  7  I.  C.  C.  Rep.  244,  June;  1897.  84  Fed.  Rep.  258,  Jan.  1898. 


THE  INTERSTATE  COMMERCE  ACT         109 

tion  of  both  the  third  and  fourth  sections  of  the  Act.  Fur- 
thermore, it  found  tJuit  the  rate  to  Macon  was  determined 
by  a<^reement  between  the  carriers  rather  than  by  com- 
petition. Admitting  that  the  Georgia  Central  could  not 
well  afford  to  reduce  its  local  rates,  the  Commission  held 
as  follows: 

The  Macon  rate  is  the  result  of  agreement.  The  Central  of 
Georgia  Railway  is  a  party  to  that  agreement.  If  it  has  not  suf- 
ficient influence  to  secure  the  adoption  of  such  rates  as  will, 
under  the  law,  yield  it  a  proper  revenue,  that  is  the  misfortune 
of  those  who  have  become  the  owners  of  the  property  which  must 
be  endured  as  every  other  misadventure  of  business  is. 

Accordingly  the  Commission  ordered  the  defendant  to 
cease  charging  more  to  Griffin  than  to  Macon,  and  dis- 
missed the  case  without  piejudice  to  the  railroad  to  apply 
to  the  Commission  for  relief  from  the  operation  of  the 
fourth  section. 

The  court  found  the  facts  difiFerent  from  those  set  forth 
in  the  findings  of  the  Commission.  The  rate  to  Macon 
was  in  no  way  under  the  control  of  the  Georgia  Central, 
there  being  five  railroads  centring  at  that  place.  Water 
competition  was  also  present  during  the  greater  part  of  the 
year.  To  comply  with  the  order  of  the  Commission,  it 
w^ould  be  necessar}'  for  the  Georgia  Central  either  to 
abandon  its  Macon  business,  or  to  operate  its  road  at  a 
loss.  It  was  also  shown  that  even  if  the  ^Macon  rate  should 
be  raised  by  agreement  between  the  roads,  that  city  would 
lose  ])ractically  tlie  whole  of  its  trade  to  its  competitors, 
Savannah,  Eufaula,  and  Columbus.  In  such  a  contingency, 
tjiere  would  be  no  advantage  to  the  merchants  of  Griffin, 
since  there  was  little  probability  that  any  portion  of  the 
trade  which  had  formerly  belonged  to  Macon  would  be 
secured  by  Griffin.   Furthermore,  the  court  added: 

The  effect  upon  the  defendant  company  would  also  In?  damag- 
ing, perhaps  incalculably  so;  .  .  .  how  stands  the  trivial  and 


no    FEDERAL  REGULATION  OF  RAILWAY  RATES 

problematical  advantage  which  Brewer  and  Hanleiter,  and 
perhaps  other  GriflSn  merchants,  might  secure,  when  compared 
with  the  stupendous  disadvantage  which  might  result  to  the 
city  of  Macon,  and  to  one  of  its  principal  railroads,  if  the  com- 
petition of  carrier  with  carrier,  and  market  with  market,  ever 
present  there,  should  be  ignored  by  the  courts  ?  Shall  the  au- 
thorities of  Government  have  no  concern  for  the  millions  of 
capital  invested  or  accumulated  through  long  years  of  enterprise 
and  diligent  business  exertion  by  the  people  of  the  latter  city  ? 
Shall  the  millions  which  they  have  invested  in  railroads  ...  to 
afford  to  the  state  great  systems  of  transportation,  result  in  their 
ruin  ?  Shall  Government  undertake  the  impossible  but  injurious 
task  of  making  the  commercial  advantages  of  one  place  equal 
to  those  of  another?  It  might  as  well  attempt  to  equalize  the 
intellectual  powers  of  its  people.  .  .  . 

GEORGIA  RAILROAD   COMMISSION   CASES 

Georgia  Railroad  Commission  vs.  Clyde  Steamship  Company  et  al.^ 
Same  vs.  Ocean  Steamship  Company,  etc. 

These  cases  are  important,  since  in  them  the  Com- 
mission adopted  a  peculiar  interpretation  of  the  statute, 
which  made  a  great  deal  of  trouble  later.  In  re  Louisville 
and  Nashville  R.  R.  Co.  (1  I.  C.  C.  Rep.  31),  the  Commis- 
sion had  held  that  in  all  cases  of  dissimilar  circumstances 
within  the  meaning  of  the  fourth  section,  the  carriers 
themselves  were  justified  in  charging  less  for  the  greater 
distance,  without  permission  from  anybody.  In  overruling 
the  doctrine  which  was  set  forth  in  this  early  case,  the  Com- 
mission now  held  as  follows: 

The  carrier  has  the  right  to  judge  in  the  first  instance  whether 
it  is  justified  in  making  the  greater  charge  for  the  shorter  dis- 
tance, under  the  fourth  section,  in  all  cases  where  the  circum- 
stances and  conditions  arise  wholly  on  its  own  line,  or  through 

^  These  constitute  seven  cases  brought  by  the  Georgia  Railroad  Com- 
mission, all  involving  similar  points.  AH  were  heard  together.  Five  were 
carried  to  the  courts  and  decisions  were  rendered  in  three  of  them. 
6  I.  C.  C.  Rep.  324,  Nov.  1892.  88  Fed.  Rep.  186,  June,  1893.  93  Fed. 
Rep.  March,  1899.   181  U.  S.  29,  April,  1901. 


THE  INTERSTATE  COMMERCE  ACT         ill 

competition  for  the  same  traflSe  with  carriers  not  subject  to  the 
act.  In  all  other  cases  under  the  fourth  section,  the  circum- 
stances and  conditions  are  presumptively  dissimilar,  and  car- 
riers must  not  charge  less  for  the  longer  distance,  except  upon 
the  order  of  the  Commission. 

The  Commission  refused  to  examine  into  the  merits  of 
the  case,  but  it  gave  the  railroads  twenty  days,  either  to 
cease  charging  more  for  the  shorter  distance,  or  to  file  a 
petition  with  the  Commission  for  relief  from  the  operation 
of  the  fourth  section.  The  railroads  refused  to  accept  this 
ruling,  and  the  Commission  appealed  to  the  courts  to 
enforce  its  order. 

The  courts  held  that  the  Commission  by  this  order 
had  been  attempting  to  legislate  in  a  most  extraordinary 
manner.  Though  a  purely  administrative  body,  it  had 
proposed  to  determine  in  advance  what  should  be  the 
presumptive  evidence  of  guilt,  and  it  had  attempted  to 
compel  the  railroads  to  go  to  it  for  permission  to  do  a  thing 
which  is  nowhere  forbidden. 

An  effort  was  made  by  the  Commission  to  get  the  Su- 
preme Court  to  examine  into  the  merits  of  the  various 
complaints,  and  to  render  a  decision  in  accordance  with 
substantial  justice  between  the  parties,  but  the  court 
emphatically  refused  to  perform  this  duty,  which  it  held 
should  have  been  performed  by  the  Commission  in  the  first 
instance.' 

THE   CHATT.WOOGA  CASE 

The  Board  of  Trade  of  Chattanooga  vs.   East  Tennessee,  Vir- 
ginia &  Georgia  Railroad  Company.^ 

In  this  case  the  Commission  decided  that  the  con- 
ditions  of   railway  competition,  and   the   competition   of 

'  In  the  Oranfje  Routing  Case  (•■200  U.  S.  356),  the  Supreme  Court 
held  that  the  courts  niipjht  enforce  an  order  of  the  Commission,  even  tliough 
the  grounds  tiiHui  which  it  was  issued  were  insufficient,  providing  the 
order  might  l)e  justified  u{X)n  other  grounds,  not  appearing  m  the  findings 
of  the  Commission. 

'  5  I.  C.  C.  Rep.  546,  Dec.  1892.  85  Fed.  Rep.  107,  Feb.  1898.  99 
Fed.  Rep.  54,  Nov.  1899.    181  U.  S.  1.  AprU,  1901. 


112    FEDERAL  REGULATION  OF  RAILWAY  RATES 

markets,  might  justify  a  greater  charge  to  Chattanooga 
than  to  Nashville  and  Memphis,  the  more  distant  points. 
But  as  the  railroad  had  not  applied  to  the  Commission 
for  relief  from  the  operation  of  the  fourth  section,  an 
order  was  issued  prohibiting  the  greater  charge  to  Chat- 
tanooga. The  enforcement  of  the  order  was  suspended, 
so  as  to  give  the  railroad  an  opportunity  to  apply  for  relief. 
The  lower  courts  sustained  the  order  of  the  Commission, 
in  this  case,  but  they  were  reversed  by  the  Supreme  Court. 
If  dissimilar  circumstances  within  the  meaning  of  the 
fourth  section  existed  at  the  more  distant  point,  they 
justified  the  lower  charge  for  the  greater  distance.  If  then 
such  circumstances  existed  at  Nashville,  the  greater  charge 
to  Chattanooga  was  lawful,  and  the  railroad  could  not  be 
required  to  go  to  the  Commission  for  permission  to  do  a 
lawful  thing.  In  all  such  cases,  therefore,  the  railroads  are 
the  initial  judges  as  to  the  dissimilarity  of  the  circumstances. 

THE   ST.    CLOUD   CASES 

George  Tileston  Milling  Co.  vs.  The  Northern  Pacific  Railway 
Company. 
The  City  of  St.  Cloud,  Minnesota  vs.  Same.^ 

The  rates  on  flour  and  upon  other  commodities  from 
St.  Cloud  to  Eastern  points  were  higher  than  the  rates 
from  Minneapolis  and  other  Minnesota  points,  which 
were  more  distantly  situated.  At  the  same  time,  the  rates 
from  Eastern  points  to  St.  Cloud  were  higher  than  those 
in  force  to  Minneapolis. 

In  deciding  this  case,  the  Commission  recognized  the 
fact  that  the  competition  of  carriers  and  of  markets  might 
justify  a  lower  rate  to  Minneapolis,  —  and  to  other  points 
near  that  city.  But  it  held  that  in  this  particular  instance, 
there  was  no  justification  for  the  higher  rates  to  St.  Cloud. 
The  defendant  carrier  was  the  only  one  of  the  several 

1  Two  cases  8  I.  C.  C.  Rep.  346,  Jan.  1900.  Order  affirmed,  but  not 
reported. 


THE  INTERSTATE  COMMERCE  ACT         113 

competing  roads  which  centred  at  Minneapolis  which 
charjijed  more  to  intermediate  points.  To  the  claim  of  the 
defendant  tliat  its  route  was  more  circuitous  than  those 
of  tlie  other  carriers  comj)eting  for  the  traffic  of  Minnea- 
polis, the  Commission  replied  tliat  to  allow  it  the  sole  priv- 
ilege of  charging  more  for  the  shorter  distance  would 
give  it  an  unfair  advantage  over  its  competitors.  If  re- 
ductions in  the  rate  from  Minneapolis  should  subject  it  to 
no  loss  with  respect  to  its  local  business,  while  all  its 
competitors  were  obliged  to  make  corresponding  reduc- 
tions in  their  local  rates,  it  would  be  in  a  position  to  ab- 
sorb the  whole  of  the  Minneapolis  traffic.  Since  the  other 
roads  had  voluntarily  agreed  to  obey  the  law,  they  should 
not  be  put  to  any  disadvantage  upon  that  account. 

THE   SUMMERVILLE   HAY   CASE 

H.  W.   Behlmer  vs.    The  Memphis   and  Charleston  Railroad 
Company} 

The  rate  on  hay  from  Memphis,  Tennessee,  to  Charles- 
ton, South  Carollina,  was  19  cents  per  100  lbs.,  while  the 
rate  to  Summerville,  an  intermediate  point,  was  28  cents. 
It  was  claimed  that  this  was  in  violation  of  the  long 
and  short  haul  clause. 

In  deciding  this  question,  the  Commission  recognized 
the  fact  tliat  the  competition  of  markets  was  the  control- 
ling force  in  determining  the  rate  to  Memphis,  but  it  held 
that  this  sort  of  competition  would  not  justify  the  higher 
charge  to  Summerville,  without  express  permission  from 
the  Commission.  Accordingly,  it  invited  the  railroad  to 
apj)ly  for  relief.  This  tlie  railroad  refused  to  do  and  the 
Commission  appealed  to  the  courts  for  a  decree  enforcing 
its  order.  Its  decision  was  reversed  by  the  Circuit  Court, 
sustained  by  Uie  Circuit  Court  of  Appeals,  and  reversed 
again  by  the  Supreme  Court.    It  was  held  that  the  Com- 

•  4  I.  C.  C.  Rep.  5i\,  June,  1894.  71  Fed.  Rep.  835.  Jan.  1896. 
83  Fed.  Rep.  898.  Nov.  1897.  175  U.  S.  648.  Jan.  1900. 


114  FEDERAL  REGULATION  OF  RAILWAY  RATES 

mission  could  not  legally  require  the  railroads  to  apply  to 
it  for  permission  to  charge  more  for  the  shorter  distance, 
for  they  were  justified  in  doing  this  without  permission 
from  anybody,  wherever  dissimilar  circumstances  pre- 
vailed at  the  more  distant  point. 

THE   PIEDMONT   CASES 
E.  D.  McClelen  vs.  Southern  Pacific  Railway  el  al} 

The  complaint  in  these  cases  was  that  a  higher  rate 
was  charged  from  Northern  points  to  Piedmont  than  to 
Anniston,  which  was  situated  further  south  upon  the  de- 
fendant's line.  It  was  urged  that  this  constituted  not  only 
a  violation  of  the  fourth  section  of  the  Interstate  Commerce 
Act,  but  also  of  the  third  section  of  that  Act,  since  it  gave 
rise  to  unreasonable  prejudice  against  Piedmont  as  com- 
pared with  Anniston.  It  was  not  contended  that  the  rates 
to  Piedmont  were  unreasonable  'per  se. 

The  defendant  railroads  claimed  that  the  practice  was 
justified  by  the  fact  that  the  lower  rate  to  Anniston  had 
resulted  from  the  competition  of  the  Louisville  and  Nash- 
ville at  that  place.  The  Commission  did  not  decide  the 
case  upon  its  merits,  but  issued  a  provisional  order  that 
the  defendants  should  cease  the  practice,  or  apply  to  it 
for  relief  from  the  operation  of  the  fourth  section.  The 
Circuit  Court  refused  to  sustain  this  order  upon  the  same 
grounds  as  in  the  cases  just  cited. 

1  Two  cases,  6  I.  C.  C.  Rep.  688,  June,  1896.  105  Fed.  Rep.  103, 
Nov.  1900. 


CHAPTER   V 

THE  INTERSTATE  COMMERCE  LAW  AND  ITS  INTERPRETATION 
BY   THE    COMMISSION   AND    BY   THE    COURTS    {concluded) 

We  shall  now  take  up  those  cases  which  deal  with  al- 
leged  discriminations  between  localities. 

THE  NASHVILLE  COAL  CASE » 
The  rate  upon  that  quality  of  coal  known  as  the 
"run  of  mines,"  from  the  producing  district  in  Western 
Kentucky  to  Nashville,  was  $L00  per  ton  all  the  year 
round.  The  rate  upon  screened  coal,  however,  was  $1.15 
in  summer,  and  $1.40  in  winter.  The  rates  upon  all  grades 
of  coal  from  the  same  points  to  Memphis  was  $1.40  the 
year  round.  It  was  contended  that  Nashville,  being  so 
much  nearer  the  producing  district,  ought  to  have  as  much 
advantage  over  Memphis  in  the  rate  on  screened  coal,  as  it 
had  in  the  run  of  mines  variety. 

The  Commission  held  tliat  the  rate  of  $1.40  on  screened 
coal  to  Nashville  was  unjust  when  compared  with  the 
Memphis  rate.  Accordingly,  it  ordered  that  the  rate  to 
Nashville  should,  in  no  season  of  the  year,  exceed  $1.15, 
and  that  this  rate  should  be  proportionally  reduced  upon 
any  reduction  in  the  Memphis  rate. 

The  Circuit  Court,  in  setting  aside  the  order  of  the 
Commission,  severely  and  properly  criticised  that  body 
for  its  attempt  to  make  the  Nashville  rate  proportionate 
to  that  to  Memphis,  where  entirely  different  considera- 
tions entered  as  factors  in  determining  the  rate.  The 
discrimination  between  the  winter  and  summer  rates  was 

'  In  re  Alleged  Unlawful  Charges  in  the  Transportation  of  Coal  by 
the  Louis\-ille  and  Nashville  R.  R.  Co.,  5  I.  C.  C.  iiep.  466,  Oct.  189«. 
73  Fed.  Rep.  409,  AprU,  1896. 


116    FEDERAL  REGULATION  OF  RAILWAY  RATES 

not  the  kind  of  discrimination  which  was  intended  to  be 
forbidden  by  the  Interstate  Commerce  Act.  In  fact,  it 
was  found  that  such  discrimination  was  highly  advantage- 
ous, both  to  the  railroads,  and  to  the  public  at  large. 

THE   MINNEAPOLIS   CASE 

The  Chamber  of  Commerce  of  Minneapolis  vs.   Great  Northern 
Railroad  Company  et  al} 

This  case  arose  out  of  the  struggle  between  Minnea- 
polis and  Duluth  for  the  flour  business  of  the  North- 
west. Duluth  possessed  the  advantage  of  situation,  being 
at  the  head  of  Lake  Superior,  while  Minneapolis  had  the 
advantage  of  an  earlier  development  of  the  industry. 

After  much  warring  of  rates,  the  railroads  of  the  North- 
west agreed  upon  a  division  of  the  grain  trafiic  of  that 
section.  This  agreement  provided  that  the  rates  upon 
grain  from  points  in  North  and  South  Dakota,  and  from 
a  section  comprising  a  large  portion  of  Minnesota,  should 
be  the  same  to  Duluth  as  to  Minneapolis.  The  Chamber 
of  Commerce  of  Minneapolis  complained  that  this  was 
an  unjust  discrimination  against  that  city,  for  most  of  the 
points  to  which  the  blanket  rates  were  extended  were 
from  ten  to  forty  per  cent  nearer  Minneapolis  than  Duluth, 
and  it  was  claimed  that  since  Duluth  had  the  advantage 
of  being  situated  nearer  the  common  market,  Minneapolis 
ought  not  to  be  deprived  of  its  advantage  of  situation 
nearer  the  sources  of  supply. 

In  deciding  this  question,  the  Commission  stated  that 
under  the  present  circumstances,  the  milling  trade  of 
Minneapolis  was  bound  to  decline.  So  far  as  such  a  re- 
sult should  be  attributed  to  the  greater  natural  advantages 
of  Duluth,  nothing  could  properly  be  done  to  prevent  it. 
But  the  natural  advantage  of  situation  of  Minneapolis 
should  not  be  taken  away  from  it.  A  milling  town  possess- 
»    8  I.  C.  C.  Rep.  346,  Nov.  1899. 


THE  INTERSTATE  COMMERCE  ACT         117 

ing  great  natural,  acquired,  and  improved  advantages  for 
the  carrying  on  of  that  industry,  and  favorably  situated 
in  point  of  distance  to  a  large  grain -producing  region,  is 
entitled  to  the  benefits  of  its  location,  and  carriers  of 
grain  to  that  point  are  not  justified  in  making  rates  to 
comj)eting  towns,  considerably  more  remote  from  the 
producing  area,  wliich  destroy  the  advantage  which  the 
former  town  is  entitled  to  enjoy.  The  Commission,  there- 
fore, ordered  that  the  rates  on  grain  to  Minneapolis  and 
Duluth  should  be  adjusted  upon  the  basis  of  their  respect- 
ive distances. 

This  decision  has  been  severely  criticised  by  Professor 
H.  R.  Meyer.'  He  would  have  us  believe  that  if  the 
Commission  had  the  power,  it  would  seek  to  limit  markets 
and  to  give  to  every  competing  industr}-  the  advantages 
which  it  possesses  over  others  in  point  of  distance. 

A  short  time  after  this  decision,  a  case  arose  in  which 
the  Chamber  of  Commerce  of  Minneapolis  strongly  ob- 
jected to  the  application  of  the  xery  principle  for  which 
it  had  contended.  AVhen  Milwaukee  and  LaCrosse,  its 
competitors  upon  the  south,  sought  to  secure  for  them- 
selves the  advantages  which  they  possessed  over  Min- 
neapolis in  point  of  distance,  the  Chamber  of  Commerce 
of  the  latter  city  requested  that  the  order  of  the  Commis- 
sion which  had  been  recently  made  in  its  favor  should  not 
be  enforced.  Accordingly,  tlie  case  was  not  pressed  before 
the  courts. 

THE   SAVANNAH   NAVAL   STORES   CASE 

The  Savannah  Bureau  of  Freight  and  Transportation  vs.  Louis- 
ville and  Nashville  Railroad  Company  et  al? 

For  a  long  time  the  rate  on  cotton  from  points  in 
Florida  to  Savannah  had  been  $2.75  per  bale,  while  the 

'  H.  R.  Meyer,  Government  Regulation  of  Railuxiy  Rata,  pp.  897- 
405. 

'  8  I.  C.  C.  Rep.  377,  1900.   118  Fed.  Rep.  613,  1902. 


118  FEDERAL  REGULATION  OF  RAILWAY  RATES 

rates  to  New  Orleans  and  Mobile  were  $2.50  and  $2.00 
respectively.  Under  these  rates,  competitive  conditions 
had  grown  up  which  divided  the  business  fairly  equally 
between  the  various  commercial  centres. 

The  Louisville  and  Nashville,  however,  in  order  to 
secure  for  itself  practically  the  whole  of  this  business, 
refused  to  continue  the  joint  rate  which  had  enabled  the 
cotton  to  move  to  Savannah  at  $2.75  per  bale.  The  result 
was  that  the  Savannah  rate  was  advanced  to  $3.30  per  bale, 
a  rate  which  was  practically  prohibitive.  As  the  rate  to 
New  Orleans  and  to  Mobile  remained  the  same,  the  whole 
of  the  traffic  now  moved  in  that  direction,  and  the  Louis- 
ville and  Nashville  thus  obtained  the  full  income  from  the 
haul,  while  if  the  cotton  had  been  carried  to  Savannah 
it  would  have  been  compelled  to  divide  the  rate  with  the 
other  joint  carriers. 

The  Interstate  Commerce  Commission  decided  that 
discrimination  between  different  localities,  for  such  rea- 
sons as  had  influenced  the  Louisville  and  Nashville,  was 
unjust  within  the  meaning  of  the  Interstate  Commerce 
Law.  Though  the  distance  to  New  Orleans  was  greater, 
it  recognized  the  legality  of  a  lower  charge  to  that  point 
in  order  to  enable  that  city  to  share  in  the  business.  But 
the  advance  in  the  Savannah  rate  to  a  point  beyond  $2.75 
per  bale,  which  resulted  in  the  exclusion  of  Savannah 
from  a  participation  in  that  business,  was  unlawful  and 
unduly  discriminatory  toward  that  city.  The  Circuit  Court 
sustained  the  order  of  the  Commission,  and  there  was  no 
appeal. 

THE   DANVILLE   CASE 

The  City  of  Danville  et  at.  vs.  Southern  Railway  Co.  et  al} 

The    rates    on    sugar    and    other    commodities    from 

Northern  and  Eastern  cities  to  Danville,  Virginia,  were 

constructed  upon  the  basis  of  the  local  charge  to  the  Ohio 

1  8  I.  C.  C.  Rep.  409,  571,  1900,  122  Fed.  Rep.  800,  1903. 


THE  INTERSTATE  COMMERCE  ACT         119 

River  plus  the  local  charge  from  the  Ohio  River  to  Dan- 
ville, while  Richmond,  Lynchburg,  and  other  Virginia 
cities  enjoyed  a  much  lower  tjirough  rate.  On  the  other 
hand,  the  rates  from  Soutliwestern  points  to  Danville 
consisted  of  the  through  rate  to  Lynchburg  plus  the  local 
rate  back  over  Uie  same  line  to  Danville.  The  rate  on 
tobacco  to  Western  points  was  out  of  all  proportion  higher 
at  Danville  than  at  LjTichburg.  It  tlms  appeared  tliat  the 
city  of  Danville  was  handicap])ed  upon  every  side. 

In  deciding  this  case,  the  Commission  recognized  the 
fact  that  competitive  conditions  justified  lower  charges  to 
Richmond  and  LjTichburg,  but  it  refused  to  recognize  the 
legality  of  a  discrimination  as  great  as  had  been  practiced 
by  the  railroads: 

If  the  carriers  desire  to  make  rates  in  that  manner,  they 
must  so  adjust  their  charges  as  not  to  annihilate  the  city  of 
Danville. 

Accordingly,  the  Commission  ordered  that  the  rates 
from  the  South  and  West  to  Danville  should  not  exceed  the 
rates  from  the  same  points  to  Lynchburg  by  more  than  ten 
per  cent,  and  tliat  the  rate  on  tobacco  from  Danville  to  the 
West  should  not  exceed  the  rate  from  LjTichburg  by  more 
tlian  fifteen  per  cent. 

The  Southern  Railway  refused  to  obey  this  order,  and 
the  Commission  began  suit  for  its  enforcement.  Both  the 
Circuit  Court  and  the  Circuit  Court  of  Appeals  refused 
to  sustain  the  order  of  the  Commission.  It  appeared  that 
the  Southern  Railway,  which  had  refused  to  obey  the 
order,  had  had  noUiing  to  do  with  tlie  reductions  of  tJie 
rates  which  had  taken  place  at  Lmchburg  and  RicJmiond. 
It  had  come  into  the  field  as  tlie  last  competitor,  and  had 
accepted  tlie  rates  to  these  cities,  just  as  it  had  found  tJiem. 
Since  tJiese  rates  were  Uicrcfore  beyond  the  control  of  tlie 
defendant  carrier,  tlie  rate  to  no  other  point  upon  its  line 
could  be  shown  to  be  unlawfully  discriminatory  when 
compared  witli  them.    As  the  Commission  had  not  found 


120  FEDERAL  REGULATION  OF  RAILWAY  RATES 

the  rate  to  Danville  to  be  unlawful  'per  se,  its  order  should 
be  set  aside.  An  appeal  is  now  pending  before  the  Supreme 
Court. 

THE   LAGRANGE   CASE 

Fuller  E.  Calloway  vs.  Louisville  and  Nashville  R.  R.  Co.  et  al} 

The  complaint  in  this  case  was  that  the  rates  from 
New  Orleans  to  LaGrange,  Georgia,  were  unjust  and  un- 
reasonable in  themselves,  and  that  they  were  unjustly 
discriminatory,  as  compared  with  the  rates  to  Hogans- 
ville,  Newman,  Palmetto,  and  Fairburn,  all  of  which 
points  were  situated  upon  the  defendant's  line  at  a  greater 
distance  from  New  Orleans. 

It  appeared  that  these  points  enjoyed  lower  rates  by 
virtue  of  the  fact  that  they  were  nearer  to  Atlanta,  the  rate 
to  LaGrange  and  to  all  the  aforementioned  points  being 
constructed  upon  the  basis  of  the  rate  to  Atlanta  plus  the 
local  rate  from  Atlanta  back  to  the  point  in  question. 

The  Commission  recognized  that  a  lower  rate  to  Atlanta 
than  to  these  intermediate  points  was  justified  by  the  com- 
petition of  carriers  and  of  markets,  but  it  held  that  the  rate 
to  Atlanta  was  not  lower  than  it  should  be.  If,  then,  the 
rate  to  Atlanta  was  reasonable,  higher  rates  to  intermediate 
points,  where  the  cost  of  carriage  was  less,  must  be  un- 
reasonable. Moreover,  the  defendant  railroad  had  earned 
twelve  per  cent  upon  its  capital  stock  for  a  long  time,  and 
this  fact  tended  to  show  that  the  highest  rates  which  were 
in  force  upon  its  line  were  unreasonable.  Furthermore, 
even  though  Atlanta  might  be  entitled  to  lower  rates  than 
LaGrange,  owing  to  the  competition  of  carriers  at  that 
place,  the  intermediate  points  between  Atlanta  and  La- 
Grange possessed  no  such  advantages,  and  were,  there- 
fore, not  entitled  to  lower  rates  than  LaGrange. 

The  Circuit  Court  sustained  this  order,  assuming  that 

1  7  I.  C.  C.  Rep.  431,  Dec.  1897.  102  Fed.  Rep.  709,  Dec.  1899. 
108  Fed.  Rep.  988,  May,  1901.  190  U.  S.  273,  May.  1903. 


THE  INTERSTATE  COMMERCE  ACT         121 

the  findings  of  the  Commission  were  frima  facie  correct. 
This  decision  was  reversed,  however,  by  the  higher  courts 
upon  the  grounds  that  the  evidence  had  failed  to  show  any 
unreasonable  prejudice  against  LaGrange.  The  Atlanta 
rate  had  resulted  from  competition,  and  was  therefore 
justified.  This  rate  plus  the  local  rate  back  to  LaGrange 
was  less  than  the  rate  to  Montgomery  plus  the  local  rate 
to  LaGrange,  Montgomery  being  the  nearest  competitive 
point  to  the  southwest  of  LaGrange  in  the  direction  of 
New  Orleans.  Thus, owing  to  the  low  rate  prevailing  from 
New  Orleans  to  Atlanta,  I^aGrange  enjoyed  a  rate  lower 
than  it  othenvise  would.  The  other  local  points  between 
LaGrange  and  Atlanta  were  entitled  to  a  lower  rate  than 
LaGrange  by  virtue  of  their  being  situated  nearer  Atlanta. 
Furthermore,  the  court  held  that  there  Avas  nothing  in  the 
evidence  to  warrant  the  ruling  that  the  rates  to  LaGrange 
were  unreasonable  in  themselves. 

While  the  findings  of  the  court  in  this  case  seem,  on  the 
whole,  to  be  correct,  there  is  no  justification  for  the  assump- 
tion by  the  court  that  LaGrange  could  have  no  grounds 
of  com])laint  as  long  as  the  low  Atlanta  rate  reacts  upon 
the  rate  to  I^aGrange  and  makes  it  less  than  it  would 
othenvise  be.  IIow  could  it  be  proved  that  the  LaGrange 
rate  would  otherwise  have  been  equal  to  the  rate  to  Mont- 
gomery, plus  the  local  rate  from  Montgomery'  to  LaGrange, 
which  was  a  pure  assumption  on  the  part  of  the  court? 
In  fact,  under  the  system  of  tapering  rates,  which  is 
generally  applied  throughout  the  countr}-,  the  rate  to 
LaGrange  would  have  been  consideral)ly  less  than  this. 

But  even  if  it  were  true  that  LaGrange  enjoyed  lower 
rates  than  it  othenvise  would,  it  does  not  necessarily  fol- 
low that  the  people  of  La(i  range  could  have  no  just  grounds 
of  complaint.  The  slight  reduction  in  the  rates  to  La- 
Grange would  be  of  no  benefit  whatever,  if  the  business 
of  that  city  were  entirely  ruined  by  greater  reductions  to  its 
competitors.    If  the  principle  for  which  tlie  court  con- 


122    FEDERAL  REGULATION  OF  RAILWAY  RATES 

tended  were  once  fully  established,  railroads  might  com- 
mit the  grossest  discriminations  between  localities,  and 
there  would  be  no  means  of  remedy, 

THE   KEARNEY   CASE 
A.  J.  Gustin  vs.  Burlington  and  Missouri  River  Ry.  Co.  et  al} 

The  rate  on  sugar  from  the  coast  to  Omaha  was  fifty 
cents  per  100  lbs.,  while  the  rate  to  Kearney,  Nebraska, 
196  miles  nearer  San  Francisco,  was  twenty-seven  cents 
higher,  or  seventy-seven  cents  per  100  lbs.  The  mer- 
chants of  Kearney  proceeded  against  the  railroads  upon 
three  grounds:  first,  that  the  rate  to  Kearney  was  un- 
reasonable yer  se  ;  secondly,  that  the  rate  of  seventy-seven 
cents  to  Kearney,  and  of  only  fifty  cents  to  Omaha,  was 
an  unjust  discrimination  against  Kearney;  and  thirdly, 
on  the  ground  that  this  practice  amounted  to  a  violation 
of  the  long  and  short  haul  clause.  It  was  argued  that  the 
conditions  at  the  two  points  were  substantially  similar, 
since  competition  appeared  to  exist  at  each.  It  was  con- 
tended that  the  only  difference  was  one  which  was  not 
recognized  by  the  statute,  namely,  an  agreement  upon  the 
part  of  the  carriers  to  maintain  rates  at  Kearney,  and  the 
failure  to  reach  such  an  agreement  at  Omaha. 

The  Commission  held  as  follows:  First,  that  there  was 
no  case  against  the  Burlington,  as  Kearney  was  situated 
upon  a  branch  of  that  line  over  which  the  through  trafiic 
from  the  coast  did  not  pass.  Secondly,  though  consider- 
able evidence  was  offered  to  show  that  the  rate  to  Kearney 
was  unreasonable  yer  se,  the  Commission  refused  so  to 
hold.  In  the  third  place,  it  was  held  that  the  lower  rate 
to  Omaha  was  justified  and  made  necessary  in  order 
to  enable  the  sugar  from  the  West  to  be  sold  in  com- 
petition with  sugar  brought  in  from  the  East  and  South 
by  river  and  rail.    It  was  also  found  that  the  rates  from 

1  6  I.  C.  C.  Rep.  148,  March,  1894.  64  Fed.  Rep.  723,  Dec.  1894. 


THE  INTERSTATE  COMMERCE  ACT         123 

the  East  being  higher  to  Kearney,  the  same  sort  of  com- 
petition did  not  exist  at  that  j)lace.  Finally,  the  Com- 
mission decided  that,  wjiile  some  higher  rates  to  Kearney 
were  justifiable,  the  differential  of  twenty-seven  cents  per 
100  lbs.  was  too  great,  and  constituted  an  unjust  discrim- 
ination. Accordingly,  it  ordered  that  the  rate  to  Kearney 
should  not  exceed  the  rate  to  Omaha  by  more  than  fifteen 
cents. 

The  Circuit  Court  refused  to  sustain  this  order.  If  as  the 
Commission  had  held  the  rate  of  fifty  cents  per  100  lbs.  to 
Omaha  was  justified  by  commercial  conditions,  no  rate 
could  be  declared  unjustly  discriminatory  when  compared 
to  it,  unless  it  could  be  shown  that  the  same  conditions 
applied.  The  court  refused  to  take  notice  of  additional 
testimony  which  was  presented  to  it  tending  to  show  that 
the  rate  to  Kearney  was  unreasonable  per  se,  for  the  case 
had  not  come  to  it  upon  those  grounds,  and  it  held  that 
such  points  should  be  first  decided  by  the  Commission. 

THE   HAMPTON   CASE 

Board  of  Trade  of    City  of  Hampton,  Florida,  vs.  Nashville, 
Chattanooga  &  St.  Louis  Railway} 

In  this  case,  we  have  another  of  those  instances  in 
which  the  Commission,  in  attempting  a  literal  interpreta- 
tion of  the  Interstate  Commerce  Act,  has  proceeded  upon 
a  principle,  which,  if  it  had  been  generally  enforced,  would 
have  revolutionized  the  whole  system  under  which  our 
commercial  and  industrial  development  has  taken  place. 

There  was  com|)laint  of  higher  rates  to  Hampton, 
Florida,  an  inland  point,  than  to  Palatka,  which  was  situ- 
ated upon  the  seaboard  and  enjoyed  the  advantages  of 
water  competition.  The  Commission  held  Uiat  some 
higher  rates  to  Hampton  were  justified,  owing  to  tlie  fact 
of  its  inland  location,  but  they  criticised  that  system  of 

'  8 1.  C.  C.  Rep.  503,  March,  1900.  120  Fed  Rep.  934,  Feb.  1903. 


124    FEDERAL  REGULATION  OF  RAILWAY  RATES 

rate-making  whereby  the  Hampton  rate  equaled  the  rate 
to  Palatka  plus  the  local  rate  back  to  Hampton.  In  this 
way  the  Hampton  merchants  were  prevented  from  com- 
peting with  those  of  Palatka,  except  within  the  city  of 
Hampton  itself.  Accordingly,  this  was  held  to  be  an  un- 
just discrimination  against  the  city  of  Hampton,  and  an 
order  was  issued  to  the  effect  that  the  rate  to  Hampton 
should  not  exceed  that  to  Palatka  by  more  than  ten  per 
cent.  Both  lower  courts  of  review  refused  to  sustain  this 
order,  on  the  ground  that  the  low  rate  to  Palatka  had 
resulted  from  water  competition,  and  there  was  no  justi- 
fication for  an  attempt  to  put  an  inland  town  upon  an 
equal  footing  with  one  upon  the  seacoast. 

THE  WILMINGTON   CASE 

The  Wilmington  Tariff  Association  vs.  Cincinnati,  Portsmouth 
&  Virginia  Railway  Company  ^ 

In  this  case  it  appeared  that  the  rates  to  Wilmington 
from  Chicago  and  St.  Louis  were  made  upon  the  basis  of 
the  local  charge  to  the  Ohio  River  plus  the  local  charge 
from  the  Ohio  River  to  Wilmington,  while  the  rates  from 
the  same  points  to  Norfolk  and  other  Virginia  cities  were 
constructed  upon  the  basis  of  a  much  lower  through 
schedule,  the  carriers  north  of  the  Ohio,  accepting  much  less 
than  their  local  charges  as  their  share  of  the  through  rate. 

The  Commission  held  that  while  the  rates  to  the  latter 
cities  were  governed  by  the  forceful  conditions  of  compe- 
tition, practically  the  same  competitive  conditions  prevailed 
at  Louisville  and  Cincinnati  as  at  St.  Louis  and  Chicago. 
It  was  held  that  whatever  constituted  a  fair  basis  for  the 
differential  between  Norfolk  and  Wilmington  in  the  rates 
from  Cincinnati  and  Louisville  ought  also  to  constitute  a 
fair  basis  for  the  differential  between  Norfolk  and  Wilming- 
ton in  the  rates  from  Chicago  and  St.  Louis.  Accordingly, 
it  held  that  the  rates  from  Chicago  and  St.  Louis  to  Norfolk 
1  9  I.  C.  C.  Rep.  118,  Dec.  1901.  124  Fed.  Rep.  624,  Aug.  1903. 


THE  INTERSTATE  COMMERCE  ACT         125 

should  not  exceed  the  rates  from  the  same  points  to  Wil- 
mington by  more  than  thirty-five  per  cent,  which  was  the 
existing  differential  between  these  points  from  Louisville 
and  Cincinnati. 

The  Circuit  Court  and  the  Circuit  Court  of  Appeals 
refused  to  enforce  this  order  on  the  ground  that  keener 
competition  existed  at  Norfolk  and  Richmond  than  at 
Wilmington.  Wherever  competition  is  present  at  two  points 
there  is  no  law  which  could  enforce  an  equal  reduction  of 
rates  in  both  cases.  Therefore,  no  unjust  discrimination 
results  if  competition  causes  a  greater  reduction  in  one 
case  than  in  the  other. 

The  next  group  of  cases  which  will  be  taken  u|)  involves 
alleged  unjust  discrimination  between  commodities. 

THE  WINDOW-SHADES  CASE 

Alanson  S.  Page  vs.  Del.,  Lack.  &  Western  R.  R.  Co.  et  al} 

The  complaint  in  this  case  arose  from  the  fact  that 
window-shades  were  placed  in  the  first  class,  while  shade- 
cloth,  window-hollands,  and  similar  material  enjoyed  a 
much  lower  rate,  being  placed  in  the  third  class.  The 
Commission,  after  investigating  the  facts,  decided  that 
window-shades  ought  to  have  as  low  a  rate  as  that  on 
window-hollands,  etc. 

The  Circuit  Court,  without  investigating  the  real  merits 
of  the  case,  refused  to  enforce  this  order,  since  it  gave  no 
permission  to  the  railroads  to  charge  a  higher  rate  upon 
the  more  expensive  grades  of  window-shades. 

It  would  seem  that  the  court  here  strained  a  point  in 
order  to  have  a  pretext  for  overruling  the  order  of  the  Com- 
mission. Absolute  justice  in  the  making  of  rates  is  an  impos- 
sibility. It  may  be  true  that  the  more  expensive  grades  of 
shades  are  able  to  stand  a  higher  rate,  perhaps  they  ought 
to  do  so,  but  such  a  principle  of  charging  according  to  the 

'  6  I.  C.  C.  Rep.  148,  March.  1894.  64  Fed.  Rep.  723,  Dec.  1894. 


126    FEDERAL  REGULATION  OF  RAILWAY  RATES 

quality  of  the  article  could  never  be  enforced  in  rate-making. 
As  there  are  many  grades  of  almost  every  commodity,  it  is 
at  once  evident  that  it  would  be  impossible  to  adjust  rates 
upon  the  basis  of  the  valuation  of  the  particular  grades 
composing  the  various  shipments  in  question.  If  this  princi- 
ple of  charging  according  to  the  value  of  the  article  trans- 
ported were  carried  to  its  logical  conclusion,  it  would  mean 
that  a  great  many  different  rates  would  have  to  be  made  for 
every  commodity,  the  rate  in  each  case  depending  upon  the 
quality  of  the  goods  composing  the  particular  shipment. 

Such  a  system  would  be  utterly  impracticable.  It  would 
lead  to  continual  disputes  between  the  railroads  and  the 
shippers  as  to  the  quality  of  the  goods  offered  for  shipment. 
Moreover,  large  shippers  would  be  continually  taking 
advantage  of  such  a  situation  in  order  to  secure  undue 
preference.  The  secret  rebate  would  then  take  the  form 
of  a  low^er  valuation  of  the  commodities  composing  the 
shipments  of  the  favored  individual.  Such  discriminations 
would  be  exceedingly  hard  to  detect,  and  it  would  be  even 
more  difficult  to  prove  criminal  intent,  as  the  railway 
agent  could  plead  ignorance  of  the  real  value  of  the  goods. 

In  fact,  the  railroads  have  never  attempted  to  adjust 
rates  to  the  value  of  the  particular  grade  of  the  commodity 
transported,  unless  the  difference  in  quality  is  such  as  to 
constitute  essentially  two  different  commodities,  such  as 
rough  and  finished  lumber.  Railroads  have  always  charged 
the  same  rates  for  the  prime  load  of  steers,  which  may 
sell  for  $6.50  per  100  lbs.,  as  for  the  canning  cattle  which 
will  not  bring  over  $2.00.  Endless  confusion  would  result 
from  an  attempt  to  adjust  rates  upon  any  other  basis.  And 
yet  we  find  that  the  court  set  aside  the  order  of  the  Com- 
mission in  this  case  on  the  ground  that  it  did  not  allow  for 
a  higher  rate  upon  the  more  expensive  grades  of  window- 
shades,  though  it  had  always  been  the  practice  of  the  rail- 
roads to  charge  a  uniform  rate  upon  all  shades.  Indeed 
a  decision  of  this  character  seems  to  give  some  foundation 


THE  INTERSTATE  COMMERCE  ACT         127 

for  the  charges  which  are  heard  in  several  quarters  to  the 
effect  that  the  courts  have  been  jealous  of  the  judicial 
power  exercised  by  the  Commission  and  have  sought  to 
discredit  it  by  overruling  it  whenever  possible. 

THE   OIL   CASE 

The  Independent  Refiners^  Association  of  Titusville,  Penn.,  vs. 
New  York  and  Pennsylvania  Railroad  Company  et  al} 

This  case  is  unimportant  in  the  form  in  which  it 
finally  came  to  the  courts,  but  its  earlier  development  is 
extremely  interesting,  in  that  it  illustrates  one  of  those 
practices  under  which  the  Standard  Oil  Company  was 
built  up.  When  tank-cars  first  began  to  be  used  in  the 
transportation  of  oil,  they  were  not  furnished  by  the  rail- 
roads, but  by  the  individual  shippers.  The  carriers  paid 
the  owners  of  the  cars  a  certain  mileage,  and  gave  them  the 
sole  privilege  of  the  use  of  such  cars. 

As  a  matter  of  course,  few  refiners,  other  than  the 
Standard  Oil  Company,  were  able  to  furnish  cars  of  this 
description  in  proportion  to  their  needs.  Accordingly, 
when  the  weaker  refineries  were  refused  the  use  of  these 
cars,  they  had  no  recourse  but  to  ship  in  barrels.  But  the 
railroads,  in  order  to  give  preference  to  the  owners  of 
tank-cars,  discriminated  in  tlieir  favor.  Thus  the  h^-po- 
thetical  weight  which  was  assumed  for  a  barrel  of  refined 
petroleum  as  compared  with  that  of  the  same  kind  of  oil 
in  tanks  operated  decidedly  to  the  advantage  of  the  latter. 
In  the  second  place,  tiie  independent  shipper  was  charged 
for  the  weight  of  the  barrel,  while  no  charge  was  made 
for  the  weight  of  the  tanks. 

Thus  the  weaker  refineries  soon  found  themselves 
unable  to  compete  with  their  strong  rival.    They  had  no 

'  6  I.  C.  C.  Rep.  378.  Oct.  1895.  137  Fed.  Rep.  343.  Mav.  1905. 
See  also:  1  I.  C.  C.  Rep.  503.  (Rioe  vs.  L.  &  X.  ei  cd.)  5  I.  C.  C.  Rep. 
193.  (Rice  vs.  Cm.,  \\.  &  B.  ei  al.)  5  I.  C.  C.  Rep.  415.  (Refiners  of 
TitusviUe  vs.  W.  N.  Y.  &  Penn.)  137  Fed.  Rep.  343. 


128    FEDERAL  REGULATION  OF  RAILWAY  RATES 

recourse  but  either  to  go  out  of  business  or  to  apply  to  the 
Commission  for  an  order  which  would  place  them  more 
nearly  upon  a  basis  of  equality  with  their  favored  com- 
petitor. They  urged  that  the  charge  for  the  weight  of  the 
barrel  was  an  unjust  discrimination  in  favor  of  those 
shippers  who  were  able  to  use  tank-cars.  It  was  shovni 
that  the  expenses  of  operation  were  perhaps  lower  upon 
barrel  than  upon  tank  shipments,  for  the  car  which  was 
used  for  the  former  could  be  utilized  upon  the  return  haul. 

The  Commission,  in  numerous  cases  which  came  before 
it,  decided  that  this  practice  was  an  unjust  discrimination 
against  the  independent  refiners.  Accordingly,  it  ordered 
that  the  railroads  should  either  furnish  tank-cars  to  all 
applicants  upon  equal  terms,  or,  in  case  such  cars  could 
not  be  furnished  when  applied  for,  they  should  charge  the 
same  rate  upon  oil  in  barrels  as  upon  oil  in  tanks,  thus 
making  no  charge  for  the  weight  of  the  barrel. 

The  equity  of  this  ruling  has  not  been  seriously  ques- 
tioned. It  is  one  of  those  cases  which  illustrate  the  neces- 
sity of  some  sort  of  government  control.  This  particular 
case,  however,  as  it  was  finally  carried  to  the  courts,  in- 
volves the  payment  of  damages  to  those  shippers  who  had 
been  unlawfully  required  to  pay  for  the  weight  of  the 
barrels.  The  Commission  ordered  that  such  damages 
should  be  paid  upon  shipments  during  the  entire  period 
1888  to  1894.  The  railroads  urged  that  damages  could 
not  accrue  to  the  shipper,  for  the  alleged  unlawful  charges 
had  been  paid  by  the  consignees,  and  not  by  the  shippers, 
though  of  course  it  was  not  denied  that  the  shipper  was 
the  real  party  injured.  The  railroads  also  claimed  that  the 
subsequent  lease  or  reorganization  of  their  properties 
exempted  them  from  liability  for  such  damages.  The  Com- 
mission overruled  these  objections,  and  upon  a  refusal 
of  the  railroads  to  pay  the  damages  awarded,  it  attempted 
to  recover  for  the  complainants  in  the  courts,  but  in  this 
it  was  unsuccessful.  An  appeal  was  taken  to  the  Supreme 
Court  of  the  United  States,  and  the  case  is  now  pending. 


THE  INTERSTATE  COMMERCE  LAW        129 

IMPORT   RATES   CASE 

Neio  York  Board  of  Trade  and  Trans,  vs.  Penri.  Ry.  Co  et  a/.' 

This  case  grew  out  of  an  attempt  upon  the  part  of 
the  various  roads  leading  to  Phihideljihiu,  Baltimore,  and 
New  Orleans  to  increase  their  share  of  the  export  trade 
in  grain.  It  was  found  that  ocean  vessels  would  not  come 
to  these  ports  for  cargoes  of  grain,  at  the  prevailing  ocean 
rates,  unless  they  could  secure  a  return  cargo  from 
Europe  to  the  port  in  question.  In  order  to  divert  such 
traffic  to  their  respective  ports  the  railroads  found  it  to 
tlieir  advantage  to  make  through  rates  uj)on  inij)ort  traffic 
which  in  themselves  Avere  frequently  unj)rotitable.  For 
this  reason  they  could  not  afford  to  extend  the  same  rates 
to  domestic  traffic. 

Upon  this  point  the  Commission  attempted  a  literal 
interpretation  of  the  Interstate  Commerce  Act.  It  was  held 
that  the  words  "a  like  kind  of  traffic,"  as  they  occur  in 
section  2  of  the  Act,  do  not  mean  traffic  that  is  identical, 
but  traffic  that  is  of  like  kind  in  the  elements  of  a  "fair  and 
just  classification."  In  this  respect,  import  and  domestic 
traffic  in  the  same  kind  of  commodities  were  of  "like 
kind"  within  the  meaning  of  the  Act,  and  any  discrimina- 
tion by  the  domestic  carriers  between  these  two  similar 
kinds  of  traffic  was  therefore  unlawful. 

The  Commission  also  strongly  urged  Uie  disadvantage 
to  which  the  domestic  producer  was  put,  sliowing  that  in 
many  cases  the  tJirough  rate  from  foreign  countries  was 
much  lower  than  the  domestic  rate  from  the  seaboard  to 
the  interior.  The  practice  of  charging  more  upon  domestic 
traffic  directly  contravened  the  })olicy  of  Congress,  which 
essays  to  protect  the  home  industr}-  as  against  the  foreign. 

Most  of  the  roads  temporarily  obeyed  the  order  of  the 
Commission,  but  the  Texas  Pacific  having  refused,  suit 

•  4  I.  C.  C.  Rep.  477,  1891.  52  Fed.  Rep.  187,  1892.  57  Fed.  Rep. 
948,  1893.    162  U.  S.  197,  March,  1896. 


130    FEDERAL  REGULATION  OF  RAILWAY  RATES 

was  brought  for  the  purpose  of  compelling  it  to  obey. 
The  Circuit  Court  and  the  Circuit  Court  of  Appeals  sus- 
tained the  order  of  the  Commission,  but  the  Supreme 
Court  reversed  it  in  a  memorable  decision,  from  which  the 
following  is  quoted: 

The  effort  of  the  Commission  by  a  rigid  general  order  to  de- 
prive the  inland  consumers  of  the  advantage  of  through  rates, 
and  thus  to  give  the  advantage  to  the  traders  of  the  large  sea- 
board cities,  seems  to  create  the  very  mischief  which  it  was  one 
of  the  objects  of  the  Act  to  remedy. 

As  we  have  already  said,  it  could  not  be  supposed  that  Con- 
gress, in  regulating  commerce,  would  intend  to  forbid  or  destroy 
an  existing  branch  of  commerce  of  value  to  the  common  car- 
riers and  to  the  consmners  within  the  United  States.  Clearly, 
express  language  must  be  used  in  the  Act  to  justify  such  a  sup- 
position. ...  It  is  self-evident  that  many  cases  may  and  do 
arise  where,  although  the  object  of  the  carriers  is  to  secure  traf- 
fic for  their  own  purposes,  and  upon  their  own  lines,  yet,  never- 
theless, the  very  fact  that  they  seek  by  the  charges  they  make 
to  secure  it  operates  to  the  interest  of  the  public.  .  .  . 

That  if  the  Commission  instead  of  confining  its  action  to 
redressing,  upon  complaint  made  by  some  particular  shipper, 
firm,  corporation,  or  locality,  some  specified  disregard  by  the 
common  carrier  of  the  provisions  of  the  Act,  proposes  to  pro- 
mulgate general  orders  which  thereby  become  rules  of  action  to 
the  carrying  companies,  the  spirit  and  letter  of  the  Act  require 
that  such  orders  should  have  in  view  the  purpose  of  promoting 
and  facilitating  commerce  and  the  welfare  of  all  to  be  affected, 
as  well  the  carriers  as  the  traders  and  consumers  of  the  country. 
,  .  .  The  mere  fact  that  the  disparity  between  the  through  and 
local  rates  was  considerable  did  not  of  itself  warrant  the  court 
in  finding  that  such  disparity  constituted  an  undue  discrimina- 
tion. .  .  . 

THE   HAY   CASE 

The  National  Hay  Association  vs.  Lake  Shore  and  Michigan 
Southern  Railway  Company  et  al} 

Among  the  results  of  the  general  changes  of  classifica- 

1  9  I.  C.  C.  Rep.  264,  Nov.  1902.  134  Fed.  Rep.  142,  1904.  202  U.  S. 
603  1905. 


THE  INTERSTATE  COMMERCE  LAW        131 

tion  by  the  Official  Classification  Committee,  January  1, 
1900,  hay  was  raised  from  the  sixth  to  the  fifth  class,  which 
meant  a  corresponding  advance  in  the  rates  u])on  that 
commodity. 

The  Interstate  Commerce  Commission,  after  an  ex- 
tensive examination  of  the  facts,  decided  that  this  advance 
was  unjust.  It  was  shown  that  while  hay  was  of  slightly 
greater  expense  to  handle '  than  grain  and  other  articles 
of  the  sixth  class  to  which  hay  formerly  belonged,  its  low 
value  in  proportion  to  its  bulk  entitled  it  to  a  considera- 
tion at  least  as  favorable  as  that  accorded  the  cereals.  It 
was  also  shown  that  the  advanced  rate  was  practically 
prohibitive  upon  the  movement  of  hay  from  the  West  to 
the  Eastern  States,  since  the  markets  in  the  latter  section 
could  be  supplied  more  cheaply  with  hay  from  Argen- 
tine and  Canada,  notwithstanding  the  duty  of  $4.00  per 
ton. 

The  Circuit  Court  refused  to  sustain  the  order  of  the 
Commission,  upon  the  ground  that  there  could  be  no  un- 
just discrimination  between  commodities  so  widely  differ- 
ing in  character  as  hay  and  grain,  or  other  commodities 
of  the  sixth  class.  Without  expressing  an  opinion  as  to 
the  reasonableness  of  the  existing  rates  upon  hay  per  se, 
the  court  held  that  the  order  of  the  Commission  re- 
quiring the  removal  of  hay  from  the  fifth  class  and 
placing  it  in  the  sixth  exceeded  the  powers  of  that  body, 
in  that  it  amounted  to  a  fixing  of  the  rate  for  the  future, 
declared  by  previous  decisions  not  to  be  within  the  scope 
of  its  powers.' 

We  shall  now  take  up  a  class  of  cases  in  which  the 
reasonableness  of  the  rate  per  se  was  questioned. 

'  The  (lifTcrcnce  in  the  assifjiial)le  cost  to  the  railroad  is  practically 
nothing,  for  the  handiiiin;  is  done  by  the  shippers. 

'  This  decision  was  subsequently  affirmed  by  the  Supreme  Court 
(202  U.  S.  613.) 


132    FEDERAL  REGULATION  OF  RAILWAY  RATES 

THE   DELAWARE   GRANGE   CASE 

The  Delaware  State  Grange  Railroad  Company  vs.  New  York, 
Philadelphia  and  Norfolk  Railroad  Company  et  al} 

Complaint  was  made  by  the  Delaware  State  Grange 
that  rates  were  higher  upon  fruits  and  vegetables  from 
points  in  Delaware  to  New  York  than  from  Norfolk, 
which  was  situated  upon  the  same  line  at  a  greater  distance 
from  New  York.  It  was  also  shown  that  certain  articles 
of  common  consumption  in  New  York  could  not  be  pro- 
duced in  Delaware,  owing  to  these  excessive  rates. 

The  Commission  held  that  the  lower  charge  from  Nor- 
folk was  justified  by  the  water  competition  which  existed 
there,  but  that  some  of  the  rates  from  points  in  Delaware 
were  unreasonable  fer  se,  owing  to  the  fact  that  they 
allowed  no  profit  to  the  producers  of  certain  commodities. 
The  Circuit  Court  overruled  this  decision  upon  the  ground 
that  the  standard  which  the  Commission  had  used  in 
determining  the  question  as  to  the  reasonableness  of 
the  rate  was  not  one  which  could  properly  be  used  in  the 
determination  of  such  cases. 

THE   COXE   COAL   CASE 

Coxe  Brothers  vs.  Lehigh  Valley  Railway  Company.^ 

The  rate  on  anthracite  coal  from  the  Lehigh  anthra- 
cite district  to  Perth  Amboy,  New  Jersey,  a  distance  of 
149  miles,  was  $L54  per  ton.  Complaint  was  made  that 
this  rate  was  excessive.  It  appeared  that  the  average  rate 
upon  all  other  commodities  was  much  less  than  the  rates 
which  were  charged  upon  coal,  and  that  the  existing 
rates  on  coal  represented  a  considerable  advance  over 
those  which  had  prevailed  previous  to  1887.  The  evidence 
also  showed  that  the  defendant  railroad  company  was  also 

»  4  I.  C.  C.  Rep.  588,  1890.  Court  decision  not  reported.  See  7th 
An.  Rep.  of  I.  C.  C.  p.  29. 

M  I.  C.  C.  Rep.  535,  1891.  74  Fed.  Rep.  784,  1896. 


THE  INTERSTATE  COMMERCE  LAW         133 

engaged  in  the  mining  and  selling  of  coal,  and  that,  owing 
to  this  excessive  rate,  the  iiide])endent  operators  were 
unable  j)r()filul)Iy  to  com})ete  with  the  railroad  company 
in  the  production  of  that  commodity,  but  were  forced  to 
close  down  or  to  sell  out  their  ])roj)erties  upon  whatever 
terms  tlie  railway  company  chose  to  dictate. 

From  the  official  report  of  the  railway  company  it  ap- 
})cared  that  the  average  receipts  per  ton-mile  were  12  mills 
on  coal,  and  only  9.58  mills  upon  all  other  classes  of  freight, 
though  the  expenses  of  operation  were  .83  mill  less  per  ton- 
mile  on  coal  than  on  other  kinds  of  merchandise.  This 
anomaly  appeared  to  be  directly  out  of  harmony  with  the 
general  practice  of  railroads,  which  is  to  make  a  much 
lower  rate  upon  such  bulky  products  as  coal  than  upon 
other  commodities  of  a  higher  grade.  It  would  therefore 
seem  that  the  high  rate  u]:>on  coal  was  made,  in  this  {)ar- 
ticular  instance,  for  the  express  purpose  of  enabling  the 
Lehigh  Company  to  eliminate  competition  in  the  mining 
and  selling  of  coal. 

The  Commission  decided  that  this  rate  on  coal  was 
unreasonable  per  sc,  and  ordered  a  reduction.  The  Circuit 
Court  and  the  Circuit  Court  of  Appeals  overruled  this 
order  upon  the  grounds  that  the  Commission  had  used  an 
erronebus  principle  in  its  determination  of  the  oj)erating 
expenses  on  the  transportation  of  the  coal  the  rates  upon 
which  were  in  question.  It  a])])carcd  that  the  rc])ort  of  the 
railway  company  showed  that  the  o})crating  expenses  for 
the  transportation  of  coal  over  the  entire  system  were 
56  per  cent  of  the  gross  receipts  derived  from  such  opera- 
tion. The  Commission  assumed  that  the  operating  ex- 
penses over  this  particular  part  of  the  system  bore  the 
same  relation  to  the  rates  charged  as  the  re])ort  of  the 
company  showed  for  the  entire  system.  It  was  upon  the 
basis  of  this  calculation  that  a  reduction  was  ordered. 

"Without  discussing  the  merits  of  the  case,  the  court  held 
that  tliis  assumption  upon  tlic  part  of  the  Commission  was 


134    FEDERAL  REGULATION  OF  RAILWAY  RATES 

unwarranted,  and  accordingly  it  refused  to  enforce  the 
order.  This  case  illustrates  the  extreme  diflSculty  of  deter- 
mining a  standard  by  which  a  given  rate  may  be  adjudged 
unreasonable. 


THE  IRON   RATES  CASE 

The  Colorado  Fuel  &  Iron  Company  vs.  Southern  Pacific 
Railway  et  al} 

In  this  case  we  have  what  seems  to  be  a  clear  instance 
of  extortionate  rates.  Previous  to  1896,  the  rate  on  iron 
and  steel  from  Pueblo,  Colorado,  to  the  Pacific  Coast  was 
$1.60  per  100  lbs.  At  the  same  time,  the  rates  from 
Chicago  and  eastern  points  to  the  coast  were  fifty  cents 
per  100  lbs.  on  iron  and  iron  products,  and  sixty  cents 
on  steel.  This  discrimination  practically  prohibited  the 
Coloardo  Fuel  and  Iron  Company  from  competing  with 
Eastern  manufacturers  in  supplying  the  extreme  Western 
States  with  these  important  products.  The  market  of  the 
Colorado  producers  was  therefore  limited  to  a  very  small 
area  in  the  immediate  vicinity.  Not  only  was  it  shown  that 
it  was  impossible  for  the  Colorado  producers  to  compete 
with  the  steel  manufacturers  of  the  East,  but  the  evidence 
showed  that  foreign  competitors,  enjoying  the  low  ocean 
rates  to  the  Pacific  Coast,  could  easily  undersell  the  Colo- 
rado Fuel  and  Iron  Company  in  that  market,  handicapped 
as  it  was  by  these  excessive  rates. 

Upon  a  preliminary  examination,  this  would  appear  to 
be  a  rather  anomalous  situation.  The  whole  history  of 
railroading  in  America  is  full  of  instances  showing  the 
tremendous  efforts  which  the  roads  have  made,  both  by  ex- 
tending low  rates  and  better  facilities,  to  develop  traflBc  and 
to  stimulate  industry  in  those  places  where  the  principal 
obstacle  has  been  that  of  distance.  Here  is  an  instance  of 

»  6  I.  C.  C.  Rep.  488,  Nov.  1895.  74  Fed.  Rep.  42,  Oct.  1898.  101 
Fed.  Rep.  779,  AprU,  1900. 


THE  INTERSTATE  COMMERCE  ACT         135 

an  mdustr}%  richly  endowed  with  the  natural  advantages 
of  large  deposits  of  coal  and  iron  ore  at  its  very  door, 
absolutely  j)revented  from  expansion  by  railroad  policy. 

It  is  difficult  to  assign  a  cause  for  this  apparently  wide 
divergence  from  the  general  practice  of  railroads.  We  may 
be  sure,  however,  that  it  was  not  an  oversight  upon  the 
part  of  the  railway  managers,  for  the  matter  of  the  ad- 
visability of  lower  rates  from  Pueblo  had  been  repeatedly 
presented  to  them. 

It  is  quite  possible  that  the  railroads  were  not  at  liberty 
to  make  rates  upon  pure  business  principles.  Few  realize 
how  completely  the  railroads  are  at  the  mercy  of  certain 
large  shippers.  In  fact,  they  dare  not  do  anj'thing  against 
the  will  of  those  shippers  who  control  a  considerable 
portion  of  the  traffic,  for  if  they  did,  the  offending  road 
would  soon  find  itself  deprived  of  an  important  item  in 
its  competitive  business.  It  would  have  been  an  easy  thing 
for  the  Eastern  steel  manufacturers  to  intimate  to  the  roads 
having  Denver  connections,  all  of  which  are  also  carriers 
of  transcontinental  traffic,  that  if  the  Colorado  Fuel  and 
Iron  Company  should  be  admitted  as  a  competitor  in  the 
trade  with  the  coast,  the  steel  from  the  East  would  go  to  the 
coast  by  the  northern  routes.  The  railroads  which  had  the 
Colorado  connections  could  ill  afford  to  lose  their  share 
of  the  traffic  in  iron  and  steel  from  the  East.  Therefore 
there  was  no  other  course  for  them  but  to  do  as  they  did, 
and  exclude  the  Colorado  Fuel  and  Iron  Company  from 
competing  for  the  trade  with  the  coast. 

But  whatever  may  have  been  the  cause  of  this  discrimi- 
nation, it  is  at  once  evident  that  it  would  have  been  of 
advantage  to  the  railroads  themselves,  and  in  fact  to  every- 
body but  the  Eastern  steel  magnates,  if  a  rate  could  have 
been  secured  which  would  have  enabled  this  traffic  to 
move.  There  can  be  no  doubt  but  that  the  disadvantage 
to  which  the  Colorado  producers  were  }>ut  was  a  real 
hardship,  entirely  unjustified  by  any  legitimate  conditions. 


136    FEDERAL  REGULATION  OF  RAILWAY  RATES 

It  would,  indeed,  be  a  rather  pessimistic  view  of  the  situa- 
tion to  hold  that  the  public  may  devise  no  remedy  for  con- 
ditions of  this  character,  which  have  frequently  occurred 
elsewhere,  and  which  may  occur  again  with  more  insidious 
results  in  the  future.  Now  let  us  look  at  the  remedy  which 
was  available  under  the  present  law. 

The  Colorado  Fuel  and  Iron  Company  applied  to  the 
Commission  for  relief.  In  November,  1895,  the  Commis- 
sion rendered  a  decision  providing  that  the  rates  from 
Pueblo  to  the  coast  should  not  exceed  45  cents  per  100  lbs. 
on  steel,  and  37^  cents  per  100  lbs.  on  iron  and  iron  pro- 
ducts, which  amounted  to  just  75  per  cent  of  the  existing 
Chicago  rate.  This  order  the  railroads  refused  to  obey, 
and  perhaps  rightly  enough,  for  it  was  too  radical  in  its 
character.  Wliile  the  case  was  pending  before  the  courts, 
the  roads  voluntarily  adopted  the  schedule  which  had  been 
recommended  by  the  Commission.  These  rates  remained 
in  effect  for  two  years,  when  the  Southern  Pacific  gave 
notice  of  an  advance  in  the  rate  from  Pueblo  to  60  cents 
upon  steel  rails  and  fastenings,  and  to  75  cents  upon  other 
steel  and  iron  products. 

Suit  was  immediately  brought  by  the  plaintiff  in  order 
to  secure  an  injunction  against  the  collection  of  the  in- 
creased rate,  and  to  collect  damages.  The  District  Court 
refused  to  award  damages,  but  issued  the  desired  injunc- 
tion. Both  parties  appealed.  The  Circuit  Court  of  Ap- 
peals overruled  the  order  of  the  Commission  upon  both 
points.  It  was  substantially  held  that  the  courts  have  no 
power  to  enjoin  the  collection  of  an  unreasonable  rate. 
Upon  this  point  the  court  took  a  rather  anomalous  position. 
It  was  held  that  a  rate  per  se  could  not  be  unlawful.  It 
was  only  the  act  of  charging  an  unreasonable  rate  which 
might  be  so  declared,  and  that  could  apply  only  to  trans- 
actions in  the  past.  The  collection  of  the  same  rate  the 
next  day  or  the  next  hour  could  not  be  declared  unlaw- 
ful in  advance,  for,  in  that  case,  the  courts  would  be  set- 


THE  INTERSTATE  COMMERCE  ACT         137 

ting  a  rate  for  the  future.  This  the  courts  may  not  do, 
since  setting  a  maximum  rate  for  the  future  is  a  legislative, 
and  not  a  judicial  function.  Hence  the  only  remedy  for 
an  injured  shipper  lies  in  an  action  to  secure  damages. 
Upon  this  point,  the  court  said  in  part: 

When  a  rate  that  has  been  exacted  or  demanded  is  challenged 
on  the  ground  that  it  was  unreasonable  or  unjust,  it  is  within 
the  province  of  a  court  or  jury  to  determine  the  issue  so  raised, 
and  to  redress  the  wrong  if  one  has  been  committed.  But  L)efore 
an  unreasonable  rate  has  been  either  paid  or  demanded,  or  an 
actual  tender  of  merchandise  for  shipment,  it  is  not  within  the 
legitimate  province  of  a  court  of  equity  to  interpose  and  fix  a 
maximum  rate,  and  thereupon  enjoin  the  carriers  from  demand- 
ing more  than  the  rate  so  established.  ...  It  is  tantamount  to 
an  exercise  of  legislative  power  of  prescribing  rates,  neither  of 
which  powers  belongs  to  a  court  of  equity.  .  .  . 

Aside  from  the  foregoing  considerations,  we  perceive  no  rea- 
son why  the  remedy  at  law  should  be  pronounced  ineffectual  or 
inadequate,  a  single  verdict  before  a  jur\-  establishing  the  un- 
reasonableness or  discriminatory  character  of  the  proposed  rate 
would  probably  lead  to  a  withdrawal  of  the  rate,  and  avoid  the 
necessity  of  further  action. 

The  adequacy  of  the  remedy  here  proposed  by  the  court 
has  been  strongly  questioned.  The  court  seems  to  over- 
look the  fact  that  the  payment  of  damages  in  such  a  case 
seldom,  if  ever,  rights  the  wrong  which  has  already  been 
committed.  The  real  party  injured  is  the  consumer,  and 
the  payment  of  damages  is  usually  a  bonus  to  the  pro- 
ducer or  to  the  shipper,  who  usually  has  already  recouped 
himself  for  all  excessive  charges  in  the  price  of  the  product. 
In  other  kinds  of  unlaA\-f  ul  practices,  remedy  in  the  courts  of 
law  has  often  been  found  inadequate.  ^Miere  such  an  un- 
laAN-ful  ]>ractice  is  of  great  advantage  to  the  pcqietrator, 
and  the  damage  falls  upon  the  public  at  large,  or  upon 
a  large  group  of  individuals,  each  one  of  whom  receives 
but  an  insignificant  portion  of  the  total  damage  accruing, 
which  may  be  ver}-  large  in  the  aggregate,  the  perpetrators 


138    FEDERAL  REGULATION  OF  RAILWAY  RATES 

of  the  wrong  often  prefer  to  pay  the  damages  awarded  in 
individual  suits,  rather  than  to  cease  the  unlawful  practice. 
It  is  owing  to  this  fact  that  government  by  injunction  of 
the  courts  of  equity  has  become  a  most  important  part  of 
our  judicial  system. 

Whatever  may  have  been  the  fact  as  to  the  law  in  the 
case,  it  would  seem  that  the  court  was  clearly  wrong  as  to 
the  adequacy  of  the  remedy  proposed.  The  individual 
who  buys  the  bread  is  not  going  to  law  about  the  rates 
upon  wheat.  No  better  illustration  of  a  situation  where 
control  by  injunction  is  necessary  can  be  given  than  the 
enforcement  of  excessive  and  unreasonable  railway  rates. 
The  remedy  through  the  collection  of  damages  in  individ- 
ual suits  has  proved  wholly  inadequate.  That  which  the 
shipper  wants  is  adequate  protection  from  extortion  in  the 
future  to  the  extent  that  he  may  place  some  dependence 
in  the  stability  of  rates,  rather  than  a  means  of  collecting 
paltry  damages  for  excessive  charges  in  the  past,  which 
may  fall  far  short  of  compensating  him  for  the  damage 
which  his  business  may  have  suffered.  The  remedy  which 
the  courts  here  suggest  has  been  provided  for  in  the  law 
since  1887,  and  yet  there  are  only  two  cases  where  damages 
have  been  sought  before  the  Federal  courts,  and  in  both 
of  those  cases  the  complainant  was  unable  to  recover.  The 
Interstate  Commerce  Law  provides  that  rates  shall  be 
reasonable  and  not  unduly  discriminatory,  and  yet  the 
court  here  declares  that  it  has  no  power  to  enjoin  the  per- 
petration of  an  unlawful  practice  of  this  character.  For- 
tunately this  decision  has  not  been  upheld  in  other  cases 
before  the  Federal  courts,  and  since  the  passage  of  the 
Elkins  Law,  the  right  of  the  court  to  issue  an  injunction 
in  such  a  case  is  established  beyond  all  reasonable  doubt. 

An  appeal  from  this  decision  was  taken  to  the  Supreme 
Court,  but  upon  the  formation  of  the  Steel  Trust,  a  private 
compromise  between  the  contending  parties  prevented  the 
final  decision  of  the  interesting  points  at  issue. 


THE  INTERSTATE  COM^fERCE  ACT         139 


THE   CATTLE    RAISERS'    ASSOCIATION   CASE 

The  Cattle  Raisers'  Association  of  Texas  vs.  Fort  Worth  and 
Denver  Railway  Company  et  al} 

Prior  to  1894,  the  Union  Stock  Yards  and  Transit 
Company  had  rendered  switching  service  u])on  Hve  stock 
consigned  to  Chicago  free  of  charge.  At  that  time,  how- 
ever, a  trackage  charge,  ranging  from  forty  to  seventy-five 
cents  per  car  each  way,  was  imposed.  In  order  to  meet 
this  additional  expense,  the  railroads  centring  in  Chicago 
imposed  a  terminal  charge  of  two  dollars  upon  all  ship- 
ments to  Chicago.  As  no  such  charge  was  im]>osed  at  other 
packing-centres,  the  imposition  of  this  terminal  fee  was 
regarded  as  a  direct  discrimination  against  Chicago,  and 
a  bitter  protest  arose.  The  Commission,  after  investigating 
the  facts,  decided  that  the  only  justification  for  the  impo- 
sition of  this  charge  was  the  new  trackage  charge  which  the 
railroads  using  this  terminal  were  compelled  to  pay,  and 
since  this  did  not  average  over  one  dollar  per  car,  the  one 
dollar  which  was  charged  in  excess  of  that  amount  was 
unreasonable,  and  therefore  unlawful. 

This  decision  was  reversed  by  all  three  courts  of  re\new, 
on  the  ground  that  the  Commission  erred  in  considering 
the  terminal  charge  as  a  separate  item  from  the  remainder 
of  the  through  Texas  rate.  As  it  appeared  that  in  1896, 
there  had  been  a  reduction  of  from  $12.00  to  $15.00  per 
car  in  the  through  rate,  it  was  held  that  the  cattle-raisers 
had  no  ground  to  complain.  Several  points,  however,  were 
left  undecided,  and  the  case  has  since  come  up  before  the 
Commission,  and  some  of  the  points  at  issue  are  still  pend- 
ing. Some  of  the  questions  which  are  yet  to  be  decided  are: 
1.  May  damages  be  collected  by  those  who  paid  this  charge 
during  the  period  from  its  imposition  in  1894,  and  the  re- 
duction of  the  tlirough  rate  in  1896  ?   2.  Is  the  charge  of 

'  7  I.  C.  C.  Rep.  513,  1898.  10  I.  C.  C.  Rep.  83,  1903.  186  D.  S. 
SiO,  1904. 


140    FEDERAL  REGULATION  OF  RAILWAY  RATES 

two  dollars  unlawful  when  applied  to  shipments  from  the 
territory  unaffected  by  the  reductions  of  1896  ?  3.  In  view 
of  advances  since  1896,  may  not  the  terminal  charge  now 
serve  to  render  the  entire  through  rate  unlawful  ?  ^ 

THE   FREIGHT   BUREAU   CASES 

The  Freight  Bureau  of  the  Cincinnati  Chamber  of  Commerce 

vs.  Cin.,  N.  0.  and  Texas  Pacific  By.  Co.  et  al. 

The  Chicago  Freight  Bureau  vs.  Louisville,  New  Albany  and 

Chicago  By.  Co.  et  al.^ 

Out  of  these  cases  grew  the  famous  maximum  rate  de- 
cision, which  has  played  such  an  important  part  in  the 
inter]3retation  of  the  Interstate  Commerce  Law. 

Prior  to  January,  1892,  rates  into  Southern  territory  were 
subject  to  the  keenest  competition  between  the  Atlantic 
steamship  lines,  the  Eastern  railroads,  and  those  of  the 
Central  West.  In  fact,  it  was  not  infrequently  the  case 
that  raw  produce  from  the  West  moved  eastward  through 
Chicago  to  New  York,  and  thence  into  the  South  by  rail 
and  ocean  lines.  Likewise  Eastern  manufactured  products 
often  moved  westward  to  Chicago,  and  then  into  the 
South  by  the  railroads  of  the  Central  West. 

In  order  to  put  a  stop  to  this  competition,  all  the  rail- 
roads leading  into  the  South  entered  into  what  was  known 
as  the  Southern  Railway  and  Steamship  Association.  The 
object  of  this  Association  may  best  be  set  forth  by  a  few 
quotations  from  the  articles  of  agreement.^ 

For  the  mutual  protection  of  the  various  interests,  and  for  the 
purpose  of  securing  the  greatest  amount  of  net  revenue  to  all  the 

1  See  11  I.  C.  C.  Rep.  277,  296.  The  Commission  here  reaffirmed  its 
former  ruling  as  far  as  it  applied  to  territory  to  which  the  reductions  of 
1896  did  not  apply,  and  to  territory  from  which  the  rates  had  been 
advanced  since  1900.  The  matter  is  still  a  subject  of  litigation. 

2  6  I.  C.  C.  Rep.  195,  1894.  76  Fed.  Rep.  183.  62  Fed.  Rep.  609. 
76  Fed.  Rep.  1007.    167  U.  S.  479,  May,  1897. 

^  The  full  text  of  this  agreement  was  presented  to  the  Senate  Com- 
mittee by  Commissioner  J.  C.  Clements.  See  Hearings  of  the  Members 
of  the  Interstate  Commerce  Commission  before  Senate  Committee, 
pp.  85-97. 


THE  INTERSTATE  COMMERCE  ACT         141 

companies,  parties  to  this  agreement,  it  is  agreed  that  what  are 
termed  'western  hnes'  shall  protect  the  revenue  derived  from 
transportation  by  what  are  known  as  'eastern  lines'  with  rates 
as  fixed  by  this  Association,  so  far  as  can  be  done  by  the  exaction 
of  local  rates,  and  that  eastern  lines  shall  in  like  manner  protect 
the  revenue  of  western  lines.  .  .  . 

It  is  distinctly  understood  and  agreed  that  the  maintenance 
of  rates  as  established  under  the  rules  of  the  Association  is  of 
the  verj'  essence  of  this  agreement,  and  parties  hereto  pledge 
themselves  to  require  all  their  connections  to  maintain  such  rates, 
and  in  the  event  of  any  company  or  line  or  its  connections,  not 
members  of  the  Association,  failing  to  conform  to  the  obligation, 
the  other  parties  in  interest  pledge  themselves  to  increase  their 
proportion  of  the  through  rates  sufficiently  to  protect  the  author- 
ized rate  whenever  required  by  the  commission  (meaning  the  ex- 
ecutive board  of  the  Association)  to  do  so,  provided  that  in  no 
case  shall  any  company  be  required  to  charge  more  than  its  local 
published  rates. 

In  pursuance  of  this  iniquitous  and  unlawful  agreement, 
there  was  a  careful  division  of  the  territory-  between  the 
Eastern  and  the  Western  lines,  which  resulted  in  giving  to 
the  Western  lines  a  practical  monopoly  of  carrying  raw 
material  into  the  South,  and  to  the  Eastern  lines  a  similar 
monopoly  in  the  traffic  in  manufactured  products.  The 
result  of  this  new  adjustment  of  rates  was  that  Chicago 
and  Cincinnati  and  other  cities  of  the  Central  ^Yest  were 
practically  excluded  from  trade  with  the  South  in  manu- 
factured jiroducts,  in  which  trade  they  had  previously 
participated. 

After  an  extended  hearing,  the  Commission  ordered  a 
readjustment  of  rates  from  Chicago  and  Cincinnati,  which 
would  have  resulted  in  placing  these  cities  more  nearly 
upon  an  equal  competitive  basis  with  the  Eastern  cities  in 
supplying  the  demand  of  the  South  for  manufactured 
products.  The  following  table  denotes  the  sweeping  char- 
acter of  the  changes  which  were  ordered: 


142    FEDERAL  REGULATION  OF  RAILWAY  RATES 


Class 

Class 

Class 

Class 

Class 

Class 

To 

1 

2 

3 

4 

6 

6 

(B 

o 

o 

a> 

c 

o 

1 

•a 

21 

11 

1    1 

2 

"B 

■o      "2 

-a    'O 

-a  "H 

2  -H 

■O     "C 

o 

<^ 

O     O 

O   O 

O  O 

o  o 

O   O 

Knoxville,  Tenn. 

76 

53 

65  45 

57  37 

47  27 

40  22 

30  20 

Chattanooga,   " 

76 

60 

65  54 

57  40 

47  30 

40  24 

30  22 

Rome,  Ga., 

107 

75 

92  64 

81  54 

68  44 

56  34 

46  24 

Atlanta,  Ga. 

107 

86 

92  73 

81  60 

68  45 

56  35 

46  27 

Meridian,  Miss. 

122 

114 

102  98 

89  80 

75  62 

62  49 

64  38 

Birmingham,  Ala. 

89 

87 

79  74 

68  60 

55  46 

47  36 

36  28 

Anniston,  Ala. 

107 

86 

92  73 

81  60 

68  45 

66  35 

46  27 

Selna,  Ala. 

108 

108 

102  92 

88  78 

71  60 

69  48 

47  36 

In  addition  to  ordering  these  radical  changes,  the  Com- 
mission sought  to  extend  the  scope  of  its  order  over  a  much 
broader  field: 

And  that  said  defendants  .  .  .  are  also  hereby  notified  to 
further  readjust  their  tariffs  of  rates  and  charges  so  that  rates 
from  Chicago  and  Cincinnati  to  southern  points  other  than  those 
above  herein  specified,  shall  be  in  due  and  proper  relation  to  rates 
put  into  effect  by  said  defendants  in  compliance  with  the  pro- 
visions of  this  order. 

The  principal  criticisms  upon  the  equity  of  this  order 
are  confined  to  the  assertion  of  the  fact  that  it  was  too 
sweeping  in  character,  and  to  the  charge  that  the  enforce- 
ment of  this  order  would  have  led  to  an  unequal  adjust- 
ment of  rates  between  the  Southern  points.  No  one  has 
denied  the  general  good  which  might  accrue  to  the  public 
if  the  Western  manufacturers  could  be  placed  upon  an 
equal  basis  with  those  of  the  East  in  supplying  the  demand 
of  the  South  for  finished  products. 

With  regard  to  the  charge  that  the  order  was  too  sweep- 
ing in  its  character,  it  may  be  said  that  it  was  no  more 
sweeping  than  the  readjustments  which  were  made  by  the 
railroads  themselves  in  pursuance  of  the  unlawful  pur- 
poses of  the  Southern  Railway  and  Steamship  Association, 
which  resulted  in  bringing  about  the  unequal  conditions 


THE  INTERSTATE  COMMERCE  ACT         143 

for  which  remedy  was  sought.  As  to  the  equity  of  the 
provisions  of  the  order  as  apphed  between  the  various 
Southern  ]>oints  themselves,  it  would  seem  from  the  face  of 
the  order  cited  above  that  some  of  these  points  might  have 
just  cause  to  complain  that  they  were  placed  at  a  disad- 
vantage with  respect  to  other  points,  but  this  fact  could 
not  be  properly  determined  without  more  evidence  than 
tliat  which  is  available  in  the  records  of  the  case. 

The  Circuit  Court  having  reversed  the  decision  of  the 
Commission,  the  matter  was  certified  to  the  Supreme 
Court,  which  rendered  the  memorable  decision  declaring 
that  Congress  had  not  delegated  rate-making  power  to  the 
Interstate  Commerce  Commission.  The  following  is  an 
extract  from  this  decision : 

It  is  one  thing  to  inquire  whether  rates  which  have  been 
charged  are  reasonable  —  that  is  a  judicial  act  —  but  an  en- 
tirely different  thing  to  prescribe  rates  for  the  future  —  that  is 
a  legislative  act. 

It  will  be  seen  in  this  case  that  the  Interstate  Commerce  Com- 
mission assumed  the  right  to  prescribe  rates  which  should  con- 
trol in  the  future,  ...  so  that  if  the  power  exists,  as  it  is  claimed, 
there  would  be  no  escape  from  the  conclusion  that  it  would  be 
within  the  discretion  of  the  Commission,  of  its  own  motion,  to 
suggest  that  interstate  rates  upon  all  roads  were  unjust  and  un- 
reasonable, notify  the  several  roads  of  such  opinion,  direct  a 
hearing,  and  upon  such  hearing  make  a  general  order  reaching 
to  every  road,  and  covering  every  rate.  .  .  .  The  power  itself 
is  so  vast  and  comprehensive,  so  largely  affecting  the  rights  of 
carriers  and  shippers,  as  well  as  indirectly  all  commercial  trans- 
actions, that  no  just  rule  of  construction  would  tolerate  such 
a  grant  of  power  by  mere  implication. 


144    FEDERAL  REGULATION  OF  RAILWAY  RATES 

THE   ORANGE   RATE   CASE 

The  Railroad  Commission  of  Florida  vs.  Savannah,  Florida 
&  Western  Baihoay  Company  et  al.^ 

In  this  case,  the  Commission  held  as  follows: 

Carriers  making  an  advance  in  rates  should  be  able  to  make 
a  satisfactoiy  justification  for  such  advance,  particularly  when 
the  old  rates  have  been  of  many  years'  standing,  and  the  ad- 
vance is  great,  and  the  traffic  affected  is  of  large  and  constantly 
increasing  volume,  and  of  vital  importance  to  a  large  section 
of  the  country. 

Acting  upon  this  principle,  the  Commission  held  that 
the  advance  of  ten  cents  per  box  in  the  rate  on  oranges 
from  Florida  to  points  in  the  State  of  New  York,  which 
was  made  by  the  defendants  on  November  23,  1890,  was 
without  justification,  and  so  far  as  it  exceeded  five  cents 
per  box  was  unreasonable. 

Here  the  Commission  exhibited  a  tendency  which  inevi- 
tably makes  its  appearance  in  all  forms  of  government 
rate-making.  The  principle  which  is  here  advocated,  if  car- 
ried out  to  its  logical  conclusion,  implies  that  the  public  has 
a  sort  of  vested  right  in  the  existing  rates,  and  that  if  the 
railroads  desire  to  raise  those  rates,  the  burden  of  proof  is 
upon  them  to  justify  such  advance,  the  'prima  facie  evi- 
dence being  that  the  advance  is  unlawful. 

This  principle  of  rate  control,  if  enforced,  might  work 
incalculable  damage  to  the  development  of  the  national 
resources  of  our  country.  Railroads  are  every  day,  and 
many  times  a  day,  extending  low  rates  for  the  purpose  of 
developing  industries  which  could  not  otherwise  exist. 
These  rates,  for  the  time  being,  may  be  unprofitable,  but 
they  are  made  upon  the  supposition  that  the  stimulation 
to  trade  resulting  from  them  will  eventually  cause  suflB- 
cient  increase  of  the  traffic  to  render  them  profitable.  It 
is  impossible  that  railway  managers  should  in  every  case 

1  5  I.  C.  C.  Rep.  13,  136,  1891.   167  U.  S.  512,  May,  1897. 


THE  INTERSTATE  COMMERCE  ACT         Uo 

be  able  to  foresee  accurately  just  what  will  be  the  result 
of  tliese  lower  rates.  They  may  frequently  be  mistaken. 
Traffic  may  not  develop  in  sufficient  measure  to  render 
the  new  rate  profitable.  But  it  sometimes  takes  several 
years  to  find  this  out.  In  the  mean  time  some  few  indus- 
tries may  have  been  built  up  upon  faith  in  the  continuance 
of  this  low  rate.  If,  however,  the  increase  in  tlie  traffic 
should  not  have  been  sufficient  to  make  the  l>usiness  as 
profitable  to  the  railroad  as  that  which  was  obtained  under 
the  former  rate,  there  is  no  other  course  for  the  railroads 
but  to  restore  the  old  rate.  Railroad  managers,  to  be  sure, 
are  not  philanthropists;  their  object  is  to  secure  the  great- 
est net  revenue  possible,  and  that  some  individuals  may 
be  crushed  under  the  wheels  of  economic  develoj)ment  is 
of  little  concern  to  them. 

In  such  a  case  as  that  just  cited,  a  bitter  cry  always 
arises  from  those  marginal  producers  who  have  come  in  on 
the  faith  in  the  continuance  of  the  existing  rates.  They 
com])lain  that  the  arbitrary  action  of  the  railroad  in  rais- 
ing rates  has  rendered  them  no  longer  able  to  stay  in 
business  and  meet  their  expenses  of  production.  The  rail- 
roads are  represented  as  devouring  monsters,  dclil)erately 
crushing  industry  for  their  owTi  personal  ends.  Few  gov- 
ernment administrative  bodies  are  ai)le  to  remain  entirely 
free  from  the  influence  of  such  arguments  as  these. 

But  what  would  inevitably  be  the  result,  if  this  principle 
were  enforced  ?  Railroad  managers  would  fear  to  make 
voluntary'  reductions,  lest,  if  the  lower  rate  should  prove 
unprofitable,  they  would  be  unable  to  secure  the  prompt 
restoration  of  the  former  rate.  They  would  prefer  to  make 
their  calculations  ujion  the  known  results  of  existing  rates, 
ratlier  than  to  ex]K>riment  with  new  rates  which  might  be 
forced  upon  tliem  in  peq^etuity,  even  though  they  might 
prove  much  less  profitable  than  the  old  rates.  This  is  the 
exact  situation  in  which  the  railroads  of  Great  Britain  find 


146    FEDERAL  REGULATION  OF  RAILWAY  RATES 

themselves  to-day,  the  difficulty  of  securing  an  advance 
practically  inhibiting  all  important  reductions.^ 

Upon  the  merits  of  this  particular  case,  however,  both 
the  Circuit  Court  and  the  Circuit  Court  of  Appeals  sus- 
tained the  order  of  the  Commission.  The  case  came  to  the 
Supreme  Court  soon  after  the  maximum  rate  decision,  and 
the  Court  merely  reaffirmed  the  doctrine  of  that  case,  to 
the  effect  that  the  Commission  had  exceeded  its  powers 
in  attempting  to  set  a  maximum  rate  for  the  future. 

THE   TRUCK   FARMERS'   CASE 

The  Truck  Farmers'  Association  of  Charleston  and  Vicinity 
vs.  Northeastern  Railroad  Company  et  alP' 


This  case  is  interesting,  since  it  is  the  first  attempt  by 
the  Commission  to  hold  the  railroads  responsible  for  un- 
reasonable icing  charges  of  private  refrigerator  lines.  Upon 
this  point  the  Commission  ruled  as  follows: 

Where  a  carrier  pays  mileage  for  a  car  which  it  employs  in 
the  service  of  shippers,  it  is  the  carrier,  and  not  the  party  or 
company  from  whom  the  car  is  rented,  who  furnishes  the  ear  to 
the  shipper,  and  in  such  case  there  is  no  privity  of  contract  be- 
tween the  car  owner  and  the  shipper. 

It  is  the  duty  of  the  carrier  to  furnish  an  adequate  and  suit- 
able equipment  for  all  the  business  which  it  undertakes,  and 
also  whatever  is  essential  to  the  safety  and  preservation  of  the 
traffic  in  transit. 

When  carriers  undertake  the  transportation  of  perishable 
traffic,  requiring  refrigeration  in  transit,  ice  and  facifities  for  its 
transportation  in  connection  with  that  trafiic  are  incidental  to 
the  service  of  transportation,  and  the  charge  therefor  is  a  charge 
in  connection  with  such  service,  within  the  meaning  of  section 
one  of  the  act  to  regulate  commerce,  in  respect  to  the  reasonable- 
ness of  which  the  carrier  is  subject  to  the  statute. 

Unfortunately,  this  particular  ruling  has  been  neither 

*  Vide  ante,  pp.  81  ff. 

^  6  I.  C.  C.  Rep.  295,  1895.  74  Fed.  Rep.  70,  1896.  83  Fed.  Rep. 
611,  1897. 


THE  INTERSTATE  COMMERCE  ACT         147 

reversed  nor  sustained  by  the  courts,  as  this  case  was  de- 
cided upon  other  grounds.  It  is  certain  that  if  this  point,  for 
which  the  Commission  is  still  contending,  should  be  sus- 
tained by  the  courts,  many  of  the  abuses  of  the  private 
car  lines,  which  have  recently  become  so  flagrant,  would 
be  subject  to  correction  by  the  public,  without  further 
legislation  than  that  there  should  be  established  a  more 
adequate  system  of  government  control  over  rates.  ^ 

In  this  particular  case,  the  Commission  assumed  that 
the  long  enforcement  of  a  given  set  of  rates  on  fruits  and 
vegetables  from  the  South  was  prima  facie  evidence  of 
the  reasonableness  of  those  rates.  As  the  railroads  failed 
to  give  adequate  reasons  for  a  considerable  advance  in 
rates  which  had  been  made,  the  Commission  held  that  the 
rates  on  strawberries  from  Charleston  to  Jersey  City  should 
not  exceed  six  cents  per  quart,  including  the  charges  for 
refrigeration,  and  that  the  refrigeration  charges  them- 
selves should  not  exceed  1^^  cents  per  quart. 

The  Circuit  Court  and  the  Circuit  Court  of  Appeals 
reversed  this  decision  on  the  grounds  that  the  Commission 
was  exceeding  its  powers  in  attempting  to  establish  a 
maximum  rate  for  the  future. 

No  opinion  w^as  expressed  as  to  the  reasonableness  of  the 
rates  proposed  by  the  Commission,  or  as  to  the  propriety 
of  including  the  icing  charges  as  a  part  of  the  transporta- 
tion for  which  the  railroads  are  responsible.^ 

The  following  are  a  few  miscellaneous  cases  which  we 
add  for  the  sake  of  completing  the  list  of  court  decisions 
up  to  1905- 

'  Sec  pp.  47  ff. 

'  It  will  ho  noted  that  this  case  was  begun  by  the  Commission  previous 
to  the  maximum  rate  decision,  and  that  its  final  determination  by  the 
courts  was  subsequent  to  that  decision. 


148    FEDERAL  REGULATION  OF  RAILWAY  RATES 

THE   KENTUCKY   AND   INDIANA   BRIDGE   CASE 

The  Kentucky  and  Indiana  Bridge  Company  vs.  Louisville 
and  Nashville  Railroad  Company} 

This  case  is  important  in  that  it  is  the  first  instance  of  a 
refusal  on  the  part  of  a  railroad  to  obey  the  order  of  the 
Commission,  and  of  the  appeal  by  the  Commission  to  the 
courts  for  the  enforcement  of  its  order.  As  the  case  has  but 
little  bearing  upon  the  subject  of  the  regulation  of  rail- 
way rates,  but  concerns  only  the  relations  of  the  carriers 
among  themselves,  it  is  properly  omitted  in  this  discussion. 

THE   PARTY   RATES   CASE 

Pittsburg,   Cincinnati  and  St.  Louis  Raihvay  Company 
vs.  Baltimore  a7id  Ohio  Railroad  Company.^ 

In  this  case  the  Commission  held  that  the  granting  of 
party  rates  was  illegal,  in  that  it  amounted  to  an  unjust 
discrimination  in  favor  of  the  wholesale  purchaser  of  trans- 
portation. Both  the  Circuit  Court  and  the  Supreme 
Court  refused  to  sustain  this  view.  They  held  that  there 
could  be  no  unjust  discrimination  as  long  as  the  same 
reductions  in  rates  were  offered  to  all  parties  of  the  same 
number  and  general  character.  In  the  opinion  of  the 
court,  such  rates  tended  to  promote  rather  than  to  hin- 
der travel,  and  the  suppression  of  the  practice  of  giving 
them  would  result  in  great  hardship.  Theatre  companies, 
pleasure  parties,  delegates  to  conventions,  etc.,  would 
suffer  great  damage  if  such  rates  were  withdrawn. 

THE   HEARD    CASE 

William  H.  Heard  vs.  Georgia  Railroad  Company.^ 

This  case  does  not  involve  the  question  of  rate  regu- 
lation, as  it  is  only  a  ruling  against   the   Georgia   Rail- 

1  2  I.  C.  C.  Rep.  162,  1888.  37  Fed.  Rep.  561,  1889. 

2  3  I.  C.  C.  Rep.  465,  1890.  43  Fed.  Rep.  37,  1890.  145  U.  S.  263, 
May,  1892. 

3  1 1.  C.  C.  Rep.  3938, 188.  3  I.  C.  C.  Rep.  Ill,  1890. 


THE  INTERSTATE  COMMERCE  ACT         149 

road  for  unlawfully  discriminating  against  colored  pas- 
sengers. The  case  was  finally  withdrawn  from  the  courts, 
owing  to  the  substantial  compliance  of  the  railroad. 

THE   ORANGE   ROUTING   CASE 

The  Consolidated  Forwarding  Company  vs.  Southern  Pacific 
Railway  et  al} 

Prior  to  Januarys  1,  1900,  shippers  of  citrus  fruits  from 
Southern  California  were  given  the  privilege  of  choosing 
the  routes  over  which  their  shipments  should  pass  in 
reaching  their  eastern  destination.  At  that  time,  however, 
an  order  was  issued  reserving  to  the  initial  carrier  this 
right  of  routing. 

The  Commission,  after  allowing  a  hearing  to  both 
parties  concerned,  rendered  an  opinion  which  strongly 
condemned  the  action  which  the  railroads  had  taken.  It 
was  held  that  such  a  practice,  in  the  very  nature  of  things, 
resulted  in  discrimination  between  the  various  shippers. 
The  facilities  of  one  route  might  be  open  to  one  shipper, 
and  closed  to  another,  or  they  might  be  open  one  moment 
and  closed  the  next  to  the  same  shipper,  without  previous 
notification.  Under  this  system  of  routing,  it  was  held  that 
equal  treatment  of  shippers  was  impossible,  and  it  was 
sho\\Ti  that  some  shippers  were  still  accorded  the  privilege 
of  a  choice  of  routes,  while  others  were  refused  the  same 
privilege.  The  practice  was  also  condemned  in  that  it 
amounted  to  an  illegal  pooling  of  traffic,  within  the  mean- 
ing of  section  five  of  the  Interstate  Commerce  Act. 

Chairman  Knapp  uttered  a  strong  dissenting  opinion 
to  the  effect  that  as  interstate  carriers  are  not  required  by 
law  to  join  with  connecting  carriers  in  the  promulgation 
of  through  rates,^  whenever  they  chose  to  do  so  voluntarily, 
they  could  impose  any  conditions  they  saw  fit,  providing 

'  9  I.  C.  C.  Rep.  \?,i,  March.  190^.    IS'J  Fed.  Rep.  8'29.  Sept.  1904. 
'  Under  the  Act  of  June  49.  1906,  carriers  may  be  reiiuired  by  the 
Commission  to  promulgate  joint  rates. 


-^L'FO« 


150    FEDERAL  REGULATION  OF  RAILWAY  RATES 

equal  treatment  were  accorded  to  all.  This  reservation  of 
the  right  of  routing  to  the  initial  carrier  was  not  in  itself  a 
refusal  to  accord  equal  treatment,  nor  was  it  evidence  of 
an  illegal  pool.  The  reservation  had  been  made  for  the  ex- 
press purpose  of  stopping  the  unequal  treatment  of  shippers. 
During  four  years  previous  to  1900,  rebates  amounting 
to  $175,000  had  been  paid  by  Eastern  carriers  to  a  single 
California  firm.  It  was  to  prevent  these  illegal  rebates  that 
the  privilege  of  routing  was  taken  away  from  the  shipper. 
The  Circuit  Court  sustained  the  order  of  the  Com- 
mission on  the  ground  that  the  defendant  carriers  were 
engaged  in  pooling  in  contravention  of  the  fifth  section  of 
the  Interstate  Commerce  Act.  A  pool  is  constituted  when- 
ever the  contract  or  agreement  provides  any  special  means 
or  agency  for  apportioning  the  freights,  which  destroys 
the  rivalry  which  would  otherwise  exist  between  the  rail- 
roads ;  and  a  contract  by  which  the  apportionment  is  left 
absolutely  to  the  will  of  the  initial  carrier,  accomplishes 
this  end  as  efiFectually  as  though  definite  percentages 
were  fixed  in  the  contract.  An  appeal  is  now  pending.^ 


SUPPLEMENTARY  NOTE  TO  CHAPTER  V 

The  following  cases  have  been  decided  since  the  above  was 
written. 

THE  TIFT  LUMBER   CASE 

H.  H.  Tift  et  al.  vs.  Southern  Railway  et  al? 

It  appeared  that  upon  Sept.  8,  1899,  important  advances  were 
made  in  the  rates  on  lumber  from  points  in  Georgia  to  the  Ohio 
River,  amounting  to  from  one  to  four  cents  per  100  lbs.  This  re- 
mained a  permanent  advance  over  the  rates  which  had  been  in 
force  since  1892.   On  April  15th,  1903,  another  advance  of  two 

*  This  decision  was  reversed  by  the  Supreme  Court,  February  6, 1906. 
It  was  held  that  such  an  arrangement  did  not  constitute  illegal  pooling 
of  traffic,  and  that  where  such  a  practice  resulted  from  a  bona  fide  effort 
to  put  a  stop  to  the  giving  of  rebates,  it  was  not  only  lawful,  but  very 
much  to  the  advantage  of  the  public.  (200  U.  S.  536.) 

2  10  I.  C.  C.  Rep.  548.  138  Fed.  Rep.  753.  The  case  is  now  pending 
in  the  Circuit  Court  of  Appeals. 


THE  INTERSTATE  COMMERCE  ACT         151 

cents  per  100  lbs.  was  promulgated.  The  latter  advance,  how- 
ever, was  prevented  from  taking  effect  by  a  temporary  injunc- 
tion which  was  issued  by  the  United  States  Circuit  Court  for 
the  southern  district  of  Georgia. 

After  an  examination  of  the  facts,  the  Commission  held  that 
the  proposed  advance  was  unreasonable.  The  carriers  were  not 
justified  in  advancing  the  rates  upon  lumber  simply  because  it 
was  made  to  appear  that  they  were  in  need  of  additional  revenue. 
The  character  of  the  commodity  transported,  the  effect  of  the 
advance  upon  the  business  interests  involved  other  than  those 
of  the  carriers  were  also  factors  which  should  be  considered  in 
the  determination  of  the  question  as  to  what  constitutes  a  rea- 
sonable rate.  Upon  a  consideration  of  all  the  facts  it  was  held, 
therefore,  that  the  existing  rate  was  suflBciently  remunerative  to 
the  carriers,  and  any  further  advance  was  without  justification. 

The  Circuit  Court  sustained  the  order  of  the  Commission  upon 
all  points.  The  prima  facie  character  of  the  findings  of  the  Com- 
mission was  strongly  urged.  Furthermore,  the  proposed  ad- 
vance was  shown  to  be  unreasonable  in  that  it  would  practically 
destroy  the  traffic  to  which  it  applied.  Referring  to  the  South- 
eastern Freight  Association,  the  court  held  that  the  concerted 
action  which  had  been  taken  by  that  organization  in  advancing 
the  rates  in  question  was  clearly  a  violation  of  the  law,  and  that 
in  so  doing  the  defendants  were  engaged  in  illegal  pooling. 

The  case  is  now  pending  in  the  Circuit  Court  of  Appeals. 

THE  YELLOW   PINE   CASE 
The  Central  Yellow  Pine  Association  vs.  The  Illinois  Central  Railway.^ 

In  this  case  the  facts  were  verj-  much  the  same  as  in  the  Tift 
Case,  to  which  reference  has  just  been  made,  except  that  the  ad- 
Tances  in  the  lumber  rate  applied  to  different  territor}'. 

Upon  April  1st,  190.3,  the  Illinois  Central  advanced  the  rates 
on  lumber  from  points  in  Ix)uisiana  east  of  the  Mississippi, 
and  from  points  in  Mississippi  and  a  portion  of  Alabama  to  the 
Ohio  River,  two  cents  per  100  lbs.  The  Central  Yellow  Pine 
Association  complained  that  the  advanced  rate  was  unreason- 
able per  se,  and  resulted  in  unjust  discrimination  against  the 
lumber  traffic,  as  compared  with  other  traffic  of  like  character. 
The  Commission  rendered  a  decision  for  the  complainants, 
which  was  sustained  by  the  Circuit  Court. 

»  10  I.  C.  C.  Rep.  489. 


152    FEDERAL  REGULATION  OF  RAILWAY  RATES 

THE   ABERDEEN   GROUP   CASE 

The  Aberdeen  Group  Commercial  Association  vs.  The  Mobile  and  Ohio 
Railroad  Company.^ 

In  this  case,  the  Commission  held  that  the  rates  on  grain  from 
St.  Louis  to  certain  points  in  Mississippi  were  unreasonable, 
and  the  carrier  was  accordingly  ordered  to  cease  and  desist 
from  charging  the  same.  The  railroad  at  first  refused  to  comply, 
but  upon  appeal  to  the  Circuit  Court  for  the  enforcement  of  the 
order,  the  Commission  was  sustained.  No  appeal  was  taken 
from  the  latter  decision. 

THE   HOPE   COTTON   OIL  CASE 
The  Hope  Cotton  Oil  Company  vs.  Texas  Pacific  et  al."^ 

The  complainant  in  this  case  alleged  that  the  defendant  rail- 
way company  had  promulgated  through  rates  from  points  in 
Louisiana  and  Texas  to  Hope,  Arkansas,  which  were  higher 
than  the  sum  of  the  local  rates  by  way  of  Texarkana. 

It  was  admitted  that  under  the  law  as  it  then  stood  there  was 
nothing  which  would  require  a  railroad  to  charge  no  more  than 
the  sum  of  its  local  rates  upon  a  through  shipment.  But  it  was 
contended  that  the  right  to  ship  upon  two  separate  bills  of  lading 
upon  the  separately  published  local  rates  of  the  defendant 
carrier  could  not  be  lawfully  denied  by  it.  It  appeared  that  the 
railroad  had  refused  to  accept  complainant's  shipments  to  Tex- 
arkana, and  to  allow  the  reconsignment  of  the  same  to  Hope, 
Arkansas,  at  the  published  local  rates. 

The  Commission  sustained  the  contention  of  the  complain- 
ants, and  issued  an  order  which  required  the  railroad  to  accept 
such  local  shipments.  The  Circuit  Court,  however,  overruled  the 
Commission  upon  this  point,  and  held  that  under  the  Elkins 
Law  as  it  then  stood,  the  carriers  were  required  to  collect  the 
whole  of  their  published  through  charges  upon  such  shipments. 

The  Commission  refused  to  prosecute  the  case  further  in  the 
courts,  but  since  the  passage  of  the  new  rate  law  in  June,  1906, 
the  Hope  Cotton  Oil  Company  has  commenced  suit  for  the  estab- 
lishment of  a  reasonable  through  rate,  which  shall  not  exceed 
the  sum  of  the  local  rates  between  the  points  in  question. 

1  10  I.  C.  C.  Rep.  505. 

2  10  I.  C.  C.  Rep.  696. 


THE  INTERSTATE  COMMERCE  ACT         153 

THE   ST.   LOUIS   HAY   CASE 
The  St.  Louis  Hay  and  Grain  Company  vs.  Southern  Railway.^ 

It  appeared  that  the  Southern  Railway  charged  two  cents 
per  100  lbs.  more  for  hay  which  was  unloaded  and  reconsigned 
in  St.  Louis,  than  u{X)n  hay  which  was  not  so  reconsigned.  The 
St.  Louis  Hay  and  Grain  Company  appealed  to  the  Commission 
on  the  grounds  that  this  practice  resulted  in  undue  prejudice  to 
their  business,  and  asked  that  the  rates  should  be  made  the  same 
upon  hay  which  was  reconsigned  in  St.  Louis  as  upon  hay  on 
through  bills  of  lading. 

The  Commission  sustained  the  contention  in  part  and  held 
that  the  rates  upon  reconsigned  hay  should  not  be  more  than 
one  cent  per  100  lbs.  higher  than  those  upon  hay  not  so  recon- 
signed. Reparation  to  the  extent  of  one  cent  per  100  lbs.  was 
accordingly  ordered  upon  all  shipments  which  had  been  made 
by  the  complainant.  The  Circuit  Court  of  the  western  district 
of  Illinois  sustained  the  Commission  upon  this  point.  An  appeal, 
however,  was  taken  from  this  decision. 

THE   SOAP   CASE 

Proctor  and  Gamble  Company  vs.  Cincinnati,  Hamilton  and  Dayton 
Railway  Company.- 

The  evidence  in  this  case  showed  that  for  thirteen  years  the 
rates  upon  laundry  soap  in  less  than  car-load  lots  had  been  the 
same  as  that  which  had  been  applied  to  fourth  class  freight  gen- 
erally, while  the  rates  upon  such  soap  in  car-load  quantities  had 
varied  between  the  regular  rates  for  fifth  and  sixth  classes. 

Upon  January-  1st,  1900,  when  the  official  classification 
schedule  went  into  force,  the  rates  upon  laundry-  soap  in  car- 
load lots  were  advanced  to  sixth  class,  while  those  uf)on  less  than 
car-load  lots  were  advanced  to  equal  those  which  applied  gener- 
ally to  third  class  freight.  Pending  suit  before  the  Commission, 
the  rates  upon  less  than  car-load  lots  were  reduced  to  -20  per  cent 
less  than  third  class,  with  the  provision  that  they  should  never  be 
less  than  fourth  class. 

After  a  consideration  of  the  facts,  the  Commission  dismissed 
the  complaint  as  far  as  it  applied  to  car-load  quantities,  but  sus- 
tained it  as  far  as  applied  to  less  than  car-load  lots.  It  was  held 
that  the  advanced  rate  would  result  in  undue  prejudice  against 
'  11  I.  C.  C.  Rep.  90.  '  146  Fed.  Rep.  539. 


154    FEDERAL  REGULATION  OF  RAILWAY  RATES 

the  complainant,  and  the  fact  that  fourth  class  rates  had  been 
applied  to  such  traffic  for  thirteen  years  was  in  itself  prima  facie 
evidence  that  the  rate  in  question  was  sufficiently  remunerative. 
Accordingly  the  defendant  carriers  were  ordered  to  continue  to 
apply  fourth  class  rates  to  laundry  soap  in  less  than  car-load  lots. 
In  November,  1905,  this  decision  was  sustained  by  the  Circuit 
Court. 

DRESSED   BEEF   CASE 

The  Chicago  Live-Stock  Exchange  vs.  Chicago  Sf  Great  Western  Rail- 
way Company  et  al.^ 

For  some  time  it  had  been  the  practice  of  the  trunk  lines  lead- 
ing from  Missouri  River  points  to  Chicago  to  charge  the  same 
rates  upon  packing-house  products  as  upon  live  stock.  This  re- 
sulted in  placing  the  packing  establishments  upon  the  Missouri 
River  upon  an  equal  footing  with  those  of  Chicago  in  supplying 
the  markets  of  the  Eastern  States  and  those  of  the  intervening 
territory. 

In  order  to  secure  a  remunerative  contract  from  the  Missouri 
River  packers,  and  thus  considerably  to  increase  its  share  of  the 
business,  the  Chicago  &  Great  Western  broke  away  from  the 
agreement  which  had  hitherto  prevailed  among  the  Western  trunk 
lines,  and  put  into  force  a  much  lower  rate  upon  packing-house 
products.  The  members  of  the  Chicago  Live-Stock  Exchange 
felt  that  this  was  an  unjust  discrimination  against  them,  and 
accordingly  brought  suit  against  the  Chicago  &  Great  Western 
in  order  to  compel  it  to  remove  this  discrimination  in  favor  of 
packing-house  products. 

The  Commission  held  that  while  the  Great  Western  was  at 
liberty  to  make  any  reductions  it  saw  fit  upon  dressed  beef  or 
other  commodities,  it  was  not  justified  in  so  adjusting  its  rates 
as  to  result  in  undue  prejudice  to  competing  industries.  In 
order  to  avoid  such  discrimination  in  favor  of  the  packing  in- 
dustry of  one  section  as  against  that  of  another,  it  was  substan- 
tially held  that  the  Great  Western  and  the  other  roads  which 
had  participated  in  this  reduction  upon  packing-house  products 
should  either  withdraw  such  concessions  or  make  similar  re- 
ductions in  the  rates  upon  live-stock.  This  the  roads  in  question 

1  10  I.  C.  C.  Rep.  428.   141  Fed.  Rep.  1003. 


THE  INTERSTATE  COMMERCE  ACT         155 

refused  to  do,  and  the  Commission  appealed  to  the  Courts  for 
the  enforcement  of  its  order. 

The  Circuit  Court  for  reasons  stated  elsewhere,'  refused  to 
enforce  this  order,  and  appeal  is  now  pending  in  the  Supreme 
Court  of  the  United  States. 

'  Vide  p.  30. 


CHAPTER  VI 

A  RATIONAL  PLAN  FOR  PUBLIC  CONTROL  OF  RATES 

In  a  preceding  chapter,  we  have  endeavored  to  show 
that  a  certain  amount  of  public  control  of  rates  is 
necessary.  Upon  this  point  nearly  all  authorities  agree. 
Circumstances  frequently  arise  where  some  sort  of  rate 
control  by  the  public  would  not  only  be  advantageous  to 
the  public  at  large,  but  to  the  railroads  themselves.  In 
fact,  even  the  most  ardent  of  the  railway  advocates  do  not 
object  so  much  to  a  system  of  public  control  in  itself  as  to 
an  irrational  and  rigid  system  of  public  control. 

Nor  has  the  right  of  the  public  to  control  rates  been 
seriously  questioned.  Common  carriers,  from  time  imme- 
morial, have  been  subject  to  peculiar  obligations  toward 
the  public.  They  have  always  been  held  to  be  legally 
bound  to  render  their  services  to  all  applicants  upon  equal 
terms,  while,  at  the  same  time,  the  charges  for  those  ser- 
vices should  not  exceed  a  reasonable  figure.  Furthermore, 
railroads  have  placed  themselves  under  peculiar  obliga- 
tions to  the  public  through  their  exercise  of  the  right  of 
eminent  domain,  a  power  which  belongs  to  no  individual 
or  private  corporation,  unless  it  has  first  been  conferred 
by  the  state. 

According  to  the  principles  upon  which  our  state  and 
national  governments  are  founded,  private  property  can- 
not be  taken  by  the  state,  or  by  a  corporation  or  individual 
exercising  the  power  of  eminent  domain  conferred  by  the 
state,  except  for  public  purposes,  and  with  due  process  of 
law.  Private  property  cannot  be  taken  for  private  purposes 
without  the  owner's  consent,  no  matter  what  compensation 
may  be  allowed.    Therefore  it  is  not  only  the  legal  right. 


A  RATIONAL  PLAN  FOR  PUBLIC  CONTROL    157 

but  tlie  duty  of  the  state  to  see  to  it,  that  wherever  it  has 
authorized  the  taking  of  property,  that  property  should 
continue  to  be  used  not  solely  for  private  but  for  public 
purposes. 

It  is  extremely  doubtful  whether  this  end  may  in  every 
case  be  fully  attained  where  the  final  determination  of 
railroad  rates  is  left  exclusively  to  the  discretion  of  private 
individuals  whose  interests  are  none  other  than  to  secure 
the  largest  return  possible  from  railway  operations.  AVhere- 
ever  extortion  and  unjust  discriminations  are  practiced, 
it  is  certain  that  this  end  is  not  attained.  No  public  pur- 
pose is  pursued  where  tlie  industries  of  one  section  of  the 
countr}'  are  destroyed  for  the  purpose  of  the  protection  of 
similar  industries  in  another  section  ill  adajited  to  their 
development,  and  where  the  only  object  of  such  a  meas- 
ure is  to  secure  some  private  advantage  for  the  railroads 
concerned.*  However  this  may  be,  it  is  certain  that  the 
state  may  exact  comj^ensation  for  the  valuable  privileges 
which  it  confers  u])on  railroads,  and  this  compensation 
may  take  the  form  of  a  mandate  that  their  rates  and  charges 
should  be  subject  to  reasonable  control. 

Another  ground  upon  which  the  right  of  the  public  to 
control  rates  is  based  is  the  necessity  of  the  service.  It  is 
not  every  necessary  service  that  needs  to  be  subjected  to 
public  control.  AYherever  the  service  is  such  that  any  per- 
son with  a  reasonable  amount  of  capital  may  engage  in 
business  under  conditions  of  free  competition,  we  may 
safely  trust  to  economic  forces  to  protect  the  public  from 
extortion.  But  this  is  not  the  case  in  the  railroad  industry'. 
It  is  the  monopolistic  feature  that  renders  public  control 
essential.  The  right  and  the  duty  of  the  public  to  exercise 
a  reasonal)le  control  over  the  agents  of  transportation  is, 
therefore,  so  generally  admitted  that  it  is  no  longer  an 
open  question. 

The  main  problem,  however,  is  the  determination  of 
*  See  Kansas  corn-meal  case,  anie,  p.  S4. 


158    FEDERAL  REGULATION  OF  RAILWAY  RATES 

what  constitutes  a  reasonable  rate.  Some  have  contended 
that,  as  long  as  railway  rates  are  below  the  cost  of  trans- 
portation by  other  means  than  railways,  the  public  has  no 
right  to  complain.  In  fact,  some  railroad  advocates  have 
arrogantly  assumed  that  the  railroads  have  been  the  sole 
causes  of  the  development  of  the  resources  of  this  country, 
and  that  the  public  ought  to  be  glad  to  obtain  any  rate  lower 
than  cost  of  transportation  without  railroads.  This  con- 
tention, however,  cannot  be  sustained.  The  railroads  have 
not  brought  about  the  development  of  this  country  entirely 
unaided.  In  fact,  the  railroads  themselves  could  have  ac- 
complished nothing  whatever  unless  there  had  been  capi- 
tal, labor,  and  men  of  affairs  ready  to  enter  and  develop 
the  new  territory  which  was  made  accessible  by  the  rail- 
roads. Surely  these  factors  have  figured  as  strongly  in  the 
development  of  this  country  as  the  railroads  themselves. 

Nor  is  it  the  present  stockholders  of  a  railroad  that  have 
enabled  it  to  exist.  The  countless  inventions  and  improve- 
ments which  have  taken  place  within  the  past  century 
are  the  result  of  the  labor  and  study  of  thousands  of  indi- 
viduals, many  of  whom  never  owned  a  single  share  of 
railway  stock.  The  Government  has  partially  recom- 
pensed these  public  benefactors  by  granting  to  them  tem- 
porary monopolies  in  the  production  of  the  articles  which 
they  have  invented.  After  the  expiration  of  the  brief 
period  for  which  the  limited  monopoly  has  been  conferred, 
the  new  process  becomes  public  property.  The  only  point 
of  contribution  which  the  railway  managers  have  made 
with  respect  to  these  great  improvements  has  been  the 
readiness  with  which  they  have  adopted  them  when  they 
saw  it  was  to  their  interests  to  do  so.  For  this  they  are 
justly  entitled  to  a  portion  of  the  advantages  accruing 
from  them. 

But  the  public,  which  has  encouraged  the  invention 
and  made  it  possible  by  granting  to  the  inventor  a  legal 
monopoly  in  the  production  of  the  article,  is  entitled  to  a 


A  RATIONAL  PLAN  FOR  PUBLIC  CONTROL    159 

far  greater  portion  of  these  advantages.  It  is  evident, 
therefore,  that  the  railroads,  embodying  as  they  do  the 
accumulated  results  of  the  enlightened  thought  of  the  past, 
and  enjoying  the  common  advantages  resulting  from  the 
growth  of  civilization  and  of  the  division  of  labor,  can- 
not lay  claim  to  all  the  advantages  which  their  existence 
renders  to  society.  Wherever,  therefore,  the  railroads  are 
unchecked  by  competition,  or  by  other  economic  causes, 
public  control  is  absolutely  necessarj-  to  prevent  them  from 
demanding  rates  which  will  enable  them  to  absorb  the  whole 
of  the  value  of  their  existence  to  the  community  which  they 
serve,  for  this  they  will  surely  do  unless  held  in  check  by 
such  regulation  or  by  the  fear  of  it.  Fortunately,  economic 
causes  have  thus  far  proved  a  most  efficient  regulator  in  all 
but  a  very  few  cases. 

On  the  other  hand,  we  have  shown  the  dangers  and 
difficulties  which  would  be  encountered  in  connection 
w^ith  any  rigid  system  of  rate  control  by  a  commission. 
We  must,  therefore,  seek  for  some  other  plan  by  which 
the  interests  of  the  public  may  be  protected,  and  at  the 
same  time  the  evils  in  connection  with  any  rigid  system  of 
rate  control,  such  as  is  embodied  in  arbitrary'  rate-fixing 
by  a  commission,  may  be  avoided  as  far  as  possible.  Let 
us,  therefore,  first  examine  the  plan  which  has  been  in 
force  since  the  passage  of  the  Interstate  Commerce  Law  of 
1887  and  see  whetlier  it  has  proved  itself  adequate  to 
meet  the  exigencies  of  the  situation. 

In  the  first  jilace  it  is  quite  evident  that  something  must 
be  wrong  with  a  plan  which  has  produced  such  gene- 
ral dissatisfaction.  It  is  exiremely  doubtful  whether  the 
present  wides])read  agitation  for  a  better  system  of  rate 
control  could  have  come  into  existence  unless  there  were 
serious  evils  in  respect  to  which  shippers  have  found  them- 
selves unable  to  obtain  an  atlequate  remedy  under  the 
present  law. 

Nevertlieless,  this  system  of  rate  control  has  accom- 


160    FEDERAL  REGULATION   OF  RAILWAY  RATES 

plished  a  great  deal  of  good,  and  it  is  certainly  preferable 
to  a  plan  by  which  all  the  railroads  of  the  country  would 
be  subjected  to  a  rigid  system  of  commission-made  rates 
constructed  strictly  upon  the  mileage  basis,  such  as  the 
system  which  prevails  within  the  State  of  Texas  to-day. 

Up  to  January  1,  1906,  the  Commission  had  re- 
ceived 3791  informal  complaints.  Of  these  some  2400 
have  been  disposed  of  informally  to  the  satisfaction  of 
both  the  shippers  and  the  railroads.  The  remainder  of 
these  cases  have  been  dropped,  either  because  the  Com- 
mission did  not  consider  the  grievance  sufficient  to  warrant 
a  formal  complaint,  or  from  neglect  on  part  of  the  com- 
plainant to  pursue  his  case  further.  With  respect  to  these 
informal  complaints  alone  the  Commission  has  more  than 
justified  its  existence.  It  has  accomplished  much  by  the 
exercise  of  its  good  ofiices  in  securing  amicable  settlements 
between  the  shippers  and  the  railroads. 

Up  to  January  1,  1905,  the  total  number  of  formal  com- 
plaints submitted  to  the  Commission  was  789.  Of  these 
359  had  been  withdrawn  owing  to  private  settlement  to 
the  satisfaction  of  the  complainant  or  for  some  other 
cause.  Formal  decisions  were  rendered  in  369  cases,  while 
sixty-one  were  still  pending  at  that  date.^  In  185  of  the 
cases  in  which  formal  decisions  were  rendered,  the  action 
taken  by  the  Commission  was  in  some  degree  favorable 
to  the  complainant.  In  practically  every  case  where  the 
Commission  declared  a  given  rate  unlawful,  it  recom- 
mended the  extent  of  the  change  which  it  considered 
necessary  to  enable  the  railroad  to  comply  with  the  law. 
In  forty-four  cases  in  which  such  recommendations  were 
made,  the  railroads  refused  to  obey  the  order,  and  the 
Commission  applied  to  the  courts  for  its  enforcement.  The 
following  table  indicates  briefly  the  disposal  which  was 
made  of  these  various  cases.    In  twenty-eight  cases  the 

^  During  the  year  1905  the  Commission  conducted  sixty-five  investi- 
gations, and  rendered  forty-five  decisions. 


A  RATIONAL  PLAN  FOR  PUBLIC  CONTROL    161 


courts  have  refused  to  enforce  the  order  of  the  Commis- 
sion, fourteen  of  these  being  decided  by  the  Supreme 
Court  on  final  appeal  and  fourteen  by  the  lower  courts 
without  appeal.   They  are  as  follows: 


Name  of  Case. 

1.  Kentucky  Bridge  Case 

2.  Party  Rates 

3.  San  Bernardino 

4.  Coxa  Coal 

5.  Cartage 

6.  Orange  Rates 

7.  Import  Rates 

8.  Delaware  Grange 

9.  Nashville  Coal 

10.  Chattanooga 

11.  Georgia  Commission 

12.  Georgia  Commission 

13.  Georgia  Commission 

14.  Alabama  Midland 

15.  Window  Shades 

16.  Freight  Bureau 

17.  Maximum  Rates 

18.  Hay  Rate 

19.  Truck  Farmers 

20.  Piedmont 

21.  Piedmont 

22.  Lagrange 

23.  Griffin 

24.  Spokane 

25.  Cattle  Raisers 

26.  Wilmington 

27.  Hay  Classification 

28.  Kearney 


Reference. 
37  Fed.  Rep.  567. 
145  U.  S.  263. 
50  Fed.  Rep.  295. 
74  Fed.  Rep.  784. 
167  U.  S.  633. 

167  U.  S.  512. 
162  U.  S.  197. 
Not  reported. 

73  Fed.  Rep.  409. 
131  U.  S.  1. 
181  U.  S.  29. 
181  U.  S.  29. 
181  U.  S.  29. 

168  U.  S.  144. 

64  Fed.  Rep.  723. 
167  U.  S.  479. 
167  U.  S.  479. 
175  U.  S.  648. 

83  Fed.  Rep.  611. 
105  Fed.  Rep.  703. 
105  Fed.  Rep.  703. 
190  U.  S.  273. 

84  Fed.  Rep.  258. 
83  Fed.  Rep.  249. 
186  U.  S.  320. 

124  Fed.  Rep.  624. 
202  U.  S.  613. 


In  three  cases  the  order  of    the  Commission  has  been 
overruled  but  appeal  is  now  pending. 

Name  of  Case.  Reference. 

1.  Danville  122  Fed.  Rep.  800. 

2.  Hampton  120  Fed.  Rep.  934. 

3.  Dressed  Beef  Not  yet  reported. 


162    FEDERAL  REGULATION  OF  RAILWAY  RATES 

In  two  cases  the  order  of  the  Commission  has  been 
enforced  by  a  formal  decision  of  the  courts. 

1.  Charleston  Naval  Stores  118  Fed.  Rep.  613. 

2.  Social  Circle  (sustained 

in  part  only)  162  U.  S.  184. 

In  two  cases  the  court  issued  a  temporary  order  enforc- 
ing partial  compliance,  but  no  formal  decision  was  ren- 
dered. 

1.  Tileston  Milling  Co.  8  I,  C.  C.  Rep.  346. 

2.  City  of  St.  Cloud  8  I.  C.  C.  Rep.  346. 

In  two  cases  the  order  of  the  Commission  has  been 
sustained  but  appeal  is  now  pending. 

1.  Orange  Routing  132  Fed.  Rep.  829. 

2.  Chesapeake  and  Ohio  128  Fed.  Rep.  59. 

Four  cases  have  been  withdrawn. 

1.  Heard  3  L  C.  C.  Rep.  111. 

2.  Georgia  Commission  5  I.  C,  C.  Rep.  324. 

3.  Georgia  Commission  5  I.  C.  C.  Rep.  324. 

4.  Minneapolis  Grain  5  I.  C.  C.  Rep.  571. 

Two  cases  are  still  pending  in  the  court  of  first  instance, 
and  one  was  dismissed,  owing  to  private  agreement  between 
the  parties.^ 

^  Since  the  above  was  written,  it  appears  that  the  courts  have  been 
taking  quite  a  different  attitude  toward  the  work  of  the  Commission. 
During  the  past  twelve  months  more  orders  of  the  Commission  have 
been  enforced  by  the  courts  than  during  the  whole  of  the  eighteen  years 
previous.  It  is  barely  possible  that  the  agitation  for  a  more  efficient  sys- 
tem of  public  regulation  of  rates  has  led  to  this  apparent  change  in  the 
trend  of  legal  decisions.  Among  the  important  cases  which  have  been 
affirmed  by  the  courts  are: 

The  Tift  Case  138  Fed.  Rep.  753. 

The  Yellow  Pine  Case  10  I.  C.  C.  Rep.  489. 

The  Aberdeen  Group  Case  10  I.  C.  C.  Rep.  505. 

Hope  Cotton  Oil  Case  10  I.  C.  C.  Rep.  696. 

St.  Louis  Hay  Case  11  I.  C.  C.  Rep.  90. 

The  Soap  Case  146  Fed.  Rep.,  539. 

The  Orange  Routing  Case,  which  had  been  previously  sustained 
by  the  Circuit  Court,  has  recently  been  overruled  by  the  Supreme  Court. 


A  RATIONAL  PLAN  FOR  PUBLIC  CONTROL    163 

Of  the  cases  overruled,  fifteen  were  on  the  ground  that 
the  Commission  had  wrongly  interpreted  the  long  and 
short  haul  clause;  four,  on  the  ground  that  the  Commis- 
sion had  not  the  power  to  fix  a  rate  to  apply  for  the  fu- 
ture; five,  on  the  ground  that  the  facts  failed  to  reveal  that 
the  discriminations  complained  of  were  unjust;  and  four 
on  various  other  grounds. 

Of  the  remaining  141  cases  in  which  the  Commission 
has  taken  action  favorable  to  the  complainants,  the  roads 
made  substantial  compliance  in  all  but  six,  and  in  all 
but  two  of  these  six  cases  the  reductions  made  were 
considerable/ 

Thus  we  see  that  the  Commission  has  been  by  no  means 
powerless  to  effect  a  remedy  in  cases  where  the  complainant 
has  justifiable  grounds  for  demanding  one.  In  more  than 
ninety-five  per  cent  of  the  cases  in  which  the  Commission 
was  unable  to  enforce  its  order,  the  courts  have  declared 
that  order  to  be  unlawful,  and  therefore  one  which  ought 
not  to  have  been  enforced.  In  view  of  this  fact,  there 
appears  to  be  no  reason  why  those  with  real  grievances 
against  the  railroads  should  not  have  reasonable  grounds 
to  expect  relief  under  the  present  system.  In  fact,  relief 
has  been  comparatively  prompt,  except  in  those  instances 
where  it  has  been  necessary  to  appeal  to  the  courts  for  the 
enforcement  of  the  order,  in  which  cases  the  average 
amount  of  time  from  the  filing  of  the  complaint  till  its 
final  disposal  has  been  considerably  more  tlian  four  years. 

And  yet  in  spite  of  this  cumbersome  machinery,  ship- 
pers have  not  been  entirely  discouraged  from  making 
complaints  before  the  Commission.  During  the  past  year 
(1905),  the  number  of  complaints  filed  was  568,  a  number 
considerably  greater  than  that  of  any  previous  year,  and 
equal  to  nearly  one  sixth  of  the  entire  number  of  com- 
plaints during  the  eighteen  years  previous.   It  is  not  at  all 

'  See  Brief  submitted  to  the  House  Committee  on  Interstate  Com- 
merce by  Mr.  E.  P.  Bacon. 


164    FEDERAL  REGULATION  OF  RAILWAY  RATES 

probable  that  the  number  of  complaints  would  thus  be 
rapidly  increasing  if  the  shippers  did  not  feel  a  reasonable 
hope  of  relief.  But  as  has  just  been  intimated,  the  main 
difficulty  of  the  present  system  is  its  cumbersome  machin- 
ery and,  as  certain  railway  advocates  strongly  assert,  the 
personnel  of  the  present  Commission. 

Let  us  for  a  moment  examine  the  grounds  for  the 
many  attacks  which  have  been  made  upon  the  present 
Commission.  In  the  first  place,  the  fact  that  the  Com- 
mission has  been  overruled  in  ninety  per  cent  of  the  cases 
which  it  has  carried  to  the  courts  is  considered  prima  facie 
evidence  against  it.  But  it  is  by  no  means  conclusive.  By 
examining  the  records  we  find  that  the  grounds  upon 
which  these  cases  have  been  overruled  were  either  a  wrong 
interpretation  of  law  by  the  Commission  or  a  wrong  find- 
ing of  facts.  The  former  class  of  cases,  which  is  by  far  the 
more  numerous,  may  be  subdivided  into  three  groups:  (1) 
cases  where  the  Commission  has  ruled  that  railroad  and 
market  competition  do  not  per  se  establish  dissimilar  cir- 
cumstances within  the  meaning  of  the  fourth  section  of 
the  act;  (2)  cases  where  the  Commission  has  held  that 
relief  from  the  application  of  the  provisions  of  the  fourth 
section  of  the  act,  whenever  the  competition  of  carriers 
subject  to  the  act  has  been  alleged  as  ground  for  that 
relief,  may  be  secured  only  through  a  direct  application 
to  the  Commission  for  relief  in  the  form  which  is  pre- 
scribed by  the  act  itself;  (3)  cases  in  which  the  Commis- 
sion has  assumed  the  power  to  fix  rates. 

Upon  these  various  points,  it  appears  that  the  Com- 
mission was  nearer  a  literal  interpretation  of  the  law  than 
the  courts,  while  the  decisions  of  the  courts,  on  the  other 
hand,  have  been  more  in  accordance  with  the  spirit  of  our 
institutions.  Nor  is  it  surprising  that  a  Commission  ap- 
pointed for  the  express  purpose  of  enforcing  a  given  law, 
should  be  inclined  to  adopt  a  literal  interpretation  of  that 
law. 


A  RATIONAL  PLAN  FOR  PUBLIC  CONTROL    165 

In  the  first  place,  the  courts  have  held  that  market  and 
railroad  competition  constitute  dissimilar  circumstances 
within  the  meaning  of  the  fourth  section  of  the  act,  while 
the  Commission  has  held  that  such  competition  so  operates 
only  in  exceptional  cases.  If  the  law  is  to  be  intcr])rctcd 
literally,  as  its  framers  evidently  intended  that  it  should 
be,  it  appears  that  the  contention  of  the  courts  as  to  the 
meaning  of  the  section  can  hardly  !)e  sustained.  In  fact 
those  circumstances  which  the  courts  hold  sufficient  to 
justify  a  departure  from  the  observance  of  the  ])rovisions 
of  the  long  and  short  haul  clause,  are  tlie  only  ones  which 
could  operate  to  cause  a  railroad  to  make  such  departure  in 
the  first  instance,  even  though  it  might  be  entirely  free 
from  legal  obligations  in  the  matter.  Self-interest  would  of 
itself  prevent  the  railroad  from  charging  less  for  the  greater 
distance,  unless  the  traffic  at  the  more  distant  ])oint  were 
subject  to  market,  rail,  or  water  competition,  such  as  did 
not  prevail  at  the  intermediate  point. 

Evidently  it  was  the  intention  of  the  framers  of  the  act 
to  extend,  as  far  as  possible,  some  of  the  benefits  arising 
from  competition  at  the  great  distributing  centres,  to  inter- 
mediate points  where  such  competition  did  not  operate. 
If  the  roads  are  allowed  perfect  freedom  to  refuse  to  ob- 
serve the  long  and  short  haul  provision  wherever  com- 
petition exists  at  the  more  distant  point,  it  is  evident  that 
the  law  will  fail  to  accom])lish  its  purpose. 

When  the  Interstate  Commerce  Act  was  first  passed, 
the  railroads  all  over  the  countrv  remodeled  their  schedules 
so  as  to  conform  to  the  long  and  short  haul  provision,  and 
there  was  a  general  and  widespread  reduction  in  local 
rates.  At  present,  however,  under  the  rulings  which  have 
been  made  by  the  courts,  the  railroads  observe  the  provision 
or  not,  practically  at  their  own  discretion,  and  the  law  has 
been  rendered  scarcely  more  than  a  dead  letter.  The  result 
has  been  tliat  there  has  been  almost  no  decline  in  local 
rates  since  1887.   I  do  not  assert  tlie  long  and  short  haul 


166    FEDERAL  REGULATION  OF  RAILWAY  RATES 

clause  is  a  wise  provision  of  the  law,  or  that  as  a  matter 
of  economic  policy  it  ought  to  be  enforced  in  many  cases. 
The  point  which  I  wish  to  make  is,  that  the  Commission 
has  adopted  a  reasonable  interpretation  of  the  law  and 
the  only  one  which  leaves  any  substance  whatever  to  it. 
A  second  point  involving  the  interpretation  of  this  sec- 
tion concerns  the  method  of  procedure  by  which  relief 
from  its  operation  may  be  obtained.  Railroads  are  pro- 
hibited from  charging  less  for  the  greater  distance  over 
the  same  line  in  the  same  direction  and  under  substan- 
tially similar  circumstances.  The  Commission  is  author- 
ized to  receive  applications  for  relief  from  the  application 
of  the  provisions  of  this  section,  and  to  grant  such  relief  in 
specific  cases  after  full  investigation.  It  is  not  to  be  sup- 
posed that  Congress  intended  to  authorize  the  Commission 
to  relieve  the  railroads  from  the  operation  of  this  section 
in  cases  where  the  circumstances  were  substantially  similar. 
That  would  have  been  to  authorize  the  very  thing  which 
the  act  was  intended  to  forbid.  From  the  wording  of  the 
clause  which  sets  forth  the  proceedings  by  which  a  railroad 
may  obtain  relief  from  the  operation  of  the  section,  it  is, 
therefore,  at  once  obvious  that  Congress  desired  to  leave 
to  the  Commission  the  power  of  determining  the  extent 
of  the  dissimilarity  which  would  warrant  the  issue  of  the 
order  of  relief,  and  that  the  railroads  should  be  permitted 
to  charge  no  less  for  the  greater  distance  unless  authorized 
to  do  so. 

Naturally  enough  the  Commission  here  again  inter- 
preted the  statute  so  as  to  leave  its  own  powers  as  broad  as 
the  framers  of  the  law  evidently  intended  they  should  be. 
Accordingly,  it  gave  general  consent  whereby  railroads 
upon  their  own  initiative  would  be  permitted  to  charge 
less  for  the  greater  distance,  wherever  the  dissimilarity  of 
circumstances  and  conditions  arose  from  water  competi- 
tion or  from  the  competition  of  railways  not  subject  to  the 
act;  while  in  other  cases,  departures  from  the  observance 


A  RATIONAL  PLAN  FOR  PUBLIC  CONTROL    167 

of  the  provision  could  only  be  justified  after  relief  had  been 
granted  in  the  form  prescribed  by  law. 

As  a  matter  of  fact,  the  Commission  has  been  very 
liberal  in  its  disposal  of  such  applications,  when  made  by 
the  railroads,  and  there  is  not  a  single  case  on  record 
where  the  Commission  refused  to  grant  relief  when  ap- 
plied for  in  the  proper  form. 

The  courts,  on  the  other  hand,  have  declared  that  the 
railroads  are  justified  in  charging  less  for  the  greater 
distance  in  all  cases  where  the  conditions  are  dissimilar, 
without  formal  application  to  the  Commission.  In  other 
words,  they  have  nullified  that  provision  of  the  law  which 
provides  that  the  Commission  shall  determine  under  what 
circumstances  relief  from  the  operation  of  the  fourth  sec- 
tion of  the  act  may  be  granted.  Probably,  in  respect  to 
this  particular  point,  the  courts  were  right  from  a  legal 
point  of  view.  The  clause  authorizing  proceedings  for 
relief  may  be  inconsistent  with  that  which  makes  it  un- 
lawful for  the  railroad  to  charge  less  for  the  greater  distance 
only  under  substantially  similar  conditions.  It  would 
seem,  however,  that  the  phrase  "under  substantially  similar 
conditions"  was  inserted  only  for  the  purpose  of  giving 
the  Commission  a  criterion  for  its  determination  of  the 
conditions  upon  which  such  relief  should  be  granted  after 
application  by  the  railroad  in  the  prescribed  form.  At  any 
rate  it  is  certain  tliat  upon  this  point  also,  tlie  Commission 
adopted  a  reasonable  interpretation  of  the  law,  and  the 
only  one  which  would  leave  any  semblance  of  force  to  the 
provision  of  the  statute  which  authorizes  special  proceed- 
ings for  relief.  Under  the  interpretation  which  the  courts 
have  adopted,  that  clause  is  a  nullity.  No  railroad  would 
go  to  the  trouble  of  instituting  proceedings  for  the  purpose 
of  securing  the  privilege  of  doing  that  which  it  is  at  liberty 
to  do  without  such  proceedings. 

The  other  important  point  of  law  upon  which  the  Com- 
mission and  the  courts  have  differed  has  been  the  question 


168    FEDERAL  REGULATION  OF  RAILWAY  RATES 

whether  the  act  of  1887  conferred  rate-making  power  upon 
the  Commission.  In  fact,  it  has  been  alleged  that  the 
Commission  exercised  that  power  during  the  first  ten 
years  of  its  existence,  practically  unquestioned  as  to  the 
legality  of  such  exercise.  This  point,  however,  is  extremely 
doubtful. 

As  the  Supreme  Court  pointed  out  in  the  maximum 
rate  decision,^  rate-making  is  a  legislative  power,  and  could 
not  be  delegated  except  in  express  terms.  Nowhere  in  the 
act  do  we  find  a  specific  clause  conferring  that  power  upon 
the  Commission.  Neither  did  the  courts  recognize  in  a 
single  case  that  such  power  had  been  conferred  by  the 
act.  If  the  Commission  had  possessed  the  legislative 
power  of  making  rates,  its  orders  would  have  been  sub- 
ject to  judicial  review  only  in  case  of  the  violation  of  some 
of  the  constitutional  rights  of  the  carriers  or  other  inter- 
ested parties.  But  we  do  not  find  a  single  instance  of  this 
character.  On  the  other  hand,  the  courts  assumed  from 
the  first  the  right  to  review  not  only  the  rate  which  the 
Commission  had  declared  to  be  the  maximum  which  the 
railways  might  lawfully  charge,  but  also  the  decision  of  the 
Commission  with  respect  to  the  question  of  the  legality  of 
the  existing  rate. 

What  then  was  the  power  which  the  Commission  ex- 
ercised during  the  first  ten  years  of  its  existence,  and  the 
continued  exercise  of  which  was  declared  unlawful  in 
the  maximum  rate  decision  ?  It  was  nothing  more  than 
that  power  which  is  expressly  conferred  by  the  statute,  i.  e., 
the  power  to  order  the  carrier  to  cease  charging  an  un- 
lawful rate,  and  to  enforce  its  order  by  appropriate  pro- 
ceedings in  the  courts.  Therefore  the  findings  of  the 
Commission  could  have  been  no  more  than  findings  of 
fact,  determining  the  extent  of  the  violation  of  the  law. 
Since  these  findings  are  of  a  judicial  character  and  the 
Commission  was  not  a  duly  constituted  court,  its  findings 
1  See  ante,  pp.  140  ff. 


A  RATIONAL  PLAN  FOR  PUBLIC  CONTROL    169 

could  have  no  legal  force  whatever,  and  the  courts  had 
the  right  to  review  its  decisions  and  to  determine  whether 
the  law  had  been  violated  independent  of  the  action 
which  the  Commission  had  taken  in  the  matter.  In  all 
this  the  Commission  exercised  no  legislative  function 
whatever.  In  fact,  there  is  not  a  single  case  where  the 
Commission  has  assumed  that  which  it  considered  to  be 
discretionary  power  in  making  rates.  Its  findings  were 
purely  of  a  judicial  and  not  of  a  legislative  character.  When 
a  given  rate  was  complained  of,  the  Commission  merely 
inquired  into  the  extent  of  the  violation  of  the  law.  But 
inasmuch  as  it  had  no  power  to  enforce  these  findings, 
they  were  of  no  legal  value  whatever.  The  result  was  that 
when  certain  cases  came  before  the  courts  for  the  enforce- 
ment of  the  order,  the  courts  naturally  confused  the  find- 
ings of  fact  determining  the  extent  of  the  violation  of  the 
law  with  the  exercise  of  the  discretionary'  power  of  rate- 
making,  which  the  Commission  never  assumed.  It  may 
have  been  true  that  the  findings  of  the  Commission  as  to 
the  extent  of  tlie  violation  of  the  law  were  wrong,  the 
rate  complained  of  may  already  have  been  reasonable, 
and  the  enforcement  of  the  order  of  the  Commission  would 
then  have  amounted  to  an  exercise  of  discretionar}-  power; 
but  there  is  absolutely  no  evidence  to  show  that  the  Com- 
mission in  a  single  instance  misconstrued  the  powers 
which  it  evidently  possessed,  namely,  of  investigating  a 
rate  complained  of,  of  issuing  an  order  the  compliance 
with  which  it  considered  necessarj'  to  enable  the  carrier 
to  comply  with  the  existing  law,  and  of  enforcing  its  order 
in  the  courts. 

Finally,  four  of  tlie  cases  which  the  Commission  carried 
to  the  courts  were  overruled  on  the  ground  tliat  tlie  Com- 
mission had  erred  in  its  findings  of  fact.  Such  reversals 
have  chiefly  resulted  from  a  refusal  on  the  part  of  the 
railroads  to  fully  present  their  case  before  the  Commission, 
since  its  order  at  all  events  could  have  no  binding  effect. 


170    FEDERAL  REGULATION  OF  RAILWAY  RATES 

Consequently  a  number  of  cases  before  the  Commission 
have  gone  against  the  railroads  practically  by  default, 
while  the  evidence  withheld  from  the  Commission  was 
produced  in  the  courts.  As  we  have  already  pointed  out, 
this  was  one  of  the  methods  which  the  railroads  have  used 
to  discredit  the  work  of  the  Commission. 

Finally,  it  must  be  remembered  that  the  railroads  have 
refused  to  obey  the  order  of  the  Commission  only  in  those 
cases  where  it  appeared  that  they  had  every  prospect  of 
success  upon  appeal  to  the  courts. 

We  come  to  the  conclusion,  therefore,  that  the  fact  that 
the  Commission  has  been  overruled  in  twenty-eight  of 
the  185  orders  which  it  has  issued  to  the  carriers  with 
respect  to  a  change  in  their  published  rates,  is  not  suf- 
ficient ground  for  the  disparagement  of  the  personnel 
of  that  body.  With  regard  to  the  three  points  of  law 
upon  which  the  Commission  and  the  courts  have  been 
at  variance,  the  Commission  has,  in  each  case,  assumed 
the  reasonable  interpretation  which  would  give  to  the 
Interstate  Commerce  Law  the  broad  application  which 
its  framers  evidently  intended  that  it  should  have,  while 
the  courts,  on  the  other  hand,  have  narrowed  and  moulded 
its  application  till  its  interpretation  is  more  in  accordance 
with  the  genius  of  our  institutions,  which  is  to  give  the 
largest  possible  range  to  private  initiative  which  is  con- 
sistent with  equal  rights  and  justice  to  all,  by  which  policy 
it  is  believed  that  in  the  long  run,  the  greatest  good  will  be 
secured  for  the  greatest  number. 

The  principal  objection,  therefore,  to  the  personnel 
of  the  present  Commission,  and  one  which  should  deter 
us  from  enlarging  its  powers,  is  that  its  members  are  nat- 
urally loath  to  change  their  points  of  view.  Upon  those 
points  in  respect  to  which  they  have  so  frequently  been 
overruled  by  the  courts,  they  still  exhibit  a  leaning  toward 
their  former  rulings  and  interpretations  of  the  law.  It  is 
impossible  that  it  should  be  otherwise,  since  men  are  al- 


A  RATIONAL  PLAN  FOR  PUBLIC  CONTROL    171 

ways  reluctant  to  abandon  a  point  of  view  upon  which 
they  have  once  staked  their  rejjutation.  It  would  seem, 
therefore,  that  the  present  law  could  be  better  enforced 
by  conferring  that  duty  uj)on  a  new  tribunal,  which  would 
be  less  apt  to  be  biased  by  previous  erroneous  interpre- 
tations of  that  law. 

The  other  grounds  upon  which  the  attacks  upon  the 
personnel  oi  the  present  Commission  are  based  are:  first, 
that  it  has  failed  properly  to  enforce  the  present  law,  and 
secondly,  that  it  has  stood  for  a  rigid  system  of  mileage 
rates,  with  the  object  of  giving  to  every  locality  the 
advantages  which  should  accrue  to  it  by  virtue  of  its 
geographical  position.  Neither  of  these  charges  is  well 
founded.  The  present  Commission  is  composed  of  men  of 
undoubted  integrity,  and  of  great  individual  acumen.  They 
have  been  battling  with  some  of  the  greatest  problems 
which  have  ever  confronted  any  similar  body  of  men.  The 
subject-matter  with  which  they  are  dealing  is  of  com- 
paratively recent  origin.  Their  decisions  cannot  be  based 
upon  a  long  line  of  judicial  opinions,  extending  back 
to  the  early  days  of  Roman  Law.  It  is  not  at  all  surpris- 
ing, therefore,  that  they  have  made  mistakes.  That  those 
individuals  whose  limited  field  of  investigation  has  been 
entirely  confined  to  those  cases  where  the  decisions  of  the 
Commission  have  appeared  the  weakest,  the  purpose  of 
whose  investigations  has  been  to  find  fault  with  the  work 
of  the  Commission,  should  find  abundant  material  for 
their  purpose,  is  by  no  means  remarkable. 

In  regard  to  the  charge  that  the  Commission  has  failed 
properly  to  enforce  the  present  law,  it  is  evident  that  the 
same  charge  may  be  made  against  practically  every  ex- 
ecutive and  administrative  officer  throughout  the  whole 
countrv'.  It  may  be  true  that  the  Interstate  Commerce 
Law  has  been  poorly  enforced,  but  what  law  has  been  en- 
forced to  tlie  perfect  satisfaction  of  all  parties  ?  Why,  then, 
should  we  expect  any  better  enforcement  of  this  law, 


172    FEDERAL  REGULATION  OF  RAILWAY  RATES 

which  is,  perhaps,  one  of  the  most  diiEcult  of  all  laws  to 
enforce  ?  Surely  the  Commission  has  not  been  indolent 
in  conducting  investigations,  hearing  complaints,  and 
turning  over  whatever  evidence  it  obtains  to  the  various 
district  attorneys.  Since  it  is  an  administrative,  and  not 
a  judicial  tribunal,  it  has  no  power  of  itself  to  try  and 
punish  violators  of  the  law,  nor  has  it  the  power  to  compel 
witnesses  to  answer  questions,  without  the  order  of  a  duly 
constituted  court.  The  only  power  which  it  may  legally 
exercise  in  this  respect  is  that  of  investigation  and  prose- 
cution. 

An  examination  of  the  record  of  the  Commission  will 
show  that  its  docket  has  been  full  to  the  limit  of  its  capacity. 
It  is  difficult  to  see  how  it  could  have  accomplished  any 
more  in  the  way  of  prosecutions,  without  neglecting  some 
of  its  other  duties.  In  the  plan  which  we  shall  presently 
propose,  the  Commission  will  be  relieved  of  the  necessity 
of  trying  formal  complaints,  and  of  rendering  long  quasi- 
judicial  decisions.  Its  whole  duty  will  be  that  of  effecting 
the  enforcement  of  the  existing  law,  and  the  prosecution 
of  those  who  fail  to  observe  it.  In  this  way  it  is  to  be 
hoped  that  its  docket  will  be  sufficiently  cleared  to  enable 
it  to  give  more  time  to  its  essentially  administrative  and 
executive  functions. 

The  other  charges  which  have  been  the  foundation  of 
many  of  the  attacks  upon  the  present  Commission,  are  of 
a  more  serious  nature.  For  instance,  Mr.  James  J.  Hill 
testified  before  the  Senate  Committee  that  the  Interstate 
Commerce  Commission  had  issued  orders  which  had 
practically  ruined  the  export  trade  in  flour  of  the  rail- 
road which  he  represented.  This  chaise  was  subsequently 
taken  up  by  the  newspapers,  and  much  capital  was 
made  of  it  by  the  opponents  of  rate  regulation. 

According  to  the  testimony  of  Mr.  Hill,  flour  could  not 
be  carried  to  the  seaboard  at  the  regular  published  rates, 
and  then  to  the  Orient  at  the  current  ocean  rates,  in  com- 


A  RATIONAL  PLAN  FOR  PUBLIC  CONTROL    173 

petition  with  the  flour  from  India  and  Austrah'a.  The 
only  way  a  traffic  of  this  kind  could  be  carried  on  was  that 
the  railroad  should  wait  till  some  vessel  was  preparing  to 
sail  with  less  than  a  full  cargo.  Under  such  circum- 
stances, it  might  be  able  to  secure  a  special  contract  with 
the  owTiers  of  the  vessel,  by  which  a  through  rate  on  flour 
would  be  made  to  the  point  of  destination  of  the  vessel, 
which  might  be  much  lower  than  the  regular  domestic  rate 
to  the  seaboard. 

In  pursuance  of  the  court  decisions  which  had  over- 
ruled it  upon  this  point,  the  Commission  had  previously 
held  that  lower  rates  might  be  accorded  uj)on  export 
than  upon  domestic  traffic,  but  it  found  nothing  in  tJie  act 
which  would  authorize  an  exception  to  tlie  i)rovision  that 
all  rates  should  be  published,  and  that  a  certain  number 
of  days'  notice  should  be  given  before  any  advance  or  re- 
duction of  a  rate.  As  a  matter  of  course,  railroads  found 
it  extremely  difficult  to  publish  a  separate  schedule  of 
every  shipment  which  was  made  upon  such  special  con- 
tract with  the  vessel-owTiers.  Then,  too,  they  seldom 
knew  the  conditions  upon  which  the  contract  would  be 
made  long  enough  in  advance  to  give  the  legal  notice 
required.  The  Great  Northern  and  certain  other  roads, 
accordingly,  refused  either  to  ])ublish  their  export  rates 
or  to  give  notice  of  intended  changes.  That  which  vitiated 
the  practice  was  that  notice  of  these  special  reductions 
was  usually  given  only  to  certain  favored  shippers,  who 
immediately  contracted  to  supply  the  vessel  with  the 
desired  addition  to  its  cargo.  The  result  was  that  this 
virtually  amounted  to  a  discrimination  in  favor  of  those 
shippers  who  were  given  notice  of  the  special  rate. 

When  the  Commission  was  notified  of  these  violations 
of  the  law,  it  at  once  conducted  an  investigation.  In  its 
decision  it  fully  recognized  the  difficulties  of  the  situa- 
tion, and  though  the  act  authorizes  no  exception  to  the 
general  requirements  as  to  the  filing  and  publication  of 


174    FEDERAL  REGULATION  OF  RAILWAY  RATES 

tariffs,  it  authorized  temporary  immunity  from  the  appli- 
cation of  the  general  rule.  Upon  this  point  it  held  as 
follows:  ^ 

The  carriers  will  be  afPorded  an  opportunity  to  adjust  their 
tariffs  and  arrangements,  and,  if  so  advised,  present  the  subject 
to  Congress,  provided,  however,  that  in  the  meantime  all  carriers 
which  do  not  publish  and  maintain  import  and  export  tariffs 
shall  file  with  the  Commission,  as  promptly  as  possible,  a  state- 
ment of  the  rates  actually  charged.  If  the  act  is  not  amended 
within  a  reasonable  time,  it  will  be  the  duty  of  the  Commission 
to  enforce  the  publication  of  import  and  export  rates  in  the  man- 
ner prescribed  by  law. 

Surely  this  does  not  appear  to  be  an  unenlightened  and 
rigid  interpretation  of  the  law  by  which  the  Commission 
expressly  authorizes  the  doing  of  that  which  is  undeniably 
a  direct  violation  of  the  law,  simply  because  it  believed 
that  economic  considerations  militated  against  the  wisdom 
of  the  policy  of  its  literal  enforcement  in  all  cases.  It  would 
appear  that  from  another  point  of  view  this  decision 
should  be  condemned  for  its  extreme  liberality,  rather 
than  for  its  rigidity  in  the  interpretation  of  the  law. 

In  accordance  with  this  decision,  the  matter  was  pre- 
sented to  Congress  at  two  consecutive  sessions,  but  that 
body  refused  to  take  any  action.  When  the  matter  again 
came  before  the  Commission,  its  duty  was  plain.  By  its 
refusal  to  take  action,  Congress  had  signified  its  desire 
that  the  law  should  remain  as  it  was.  The  only  course 
which  was  then  left  to  the  Commission  was  that  it  should 
perform  its  legal  duty  of  enforcing  the  law.  Accordingly, 
it  issued  an  order  that  carriers  should  publish  and  file 
with  the  Commission  a  statement  of  their  proportion  of  the 
through  export  and  import  rates  in  the  manner  prescribed 
by  law.  The  result  of  this  order  was  that  the  Commission 
was  heralded  all  over  the  country  as  willfully  destroying 

'  In  the  matter  of  the  publication  and  filing  of  tariffs  upon  export 
and  import  traffic.     10  I.  C.  C.  Rep.  55. 


I 


A  RATIONAL  PLAN  FOR  PUBLIC  CONTROL    175 

an  important  portion  of  our  foreign  commerce.  Surely 
the  blame  for  this,  if  blame  there  be,  rests  with  Congress, 
and  not  with  the  Commission,  which  was  only  performing 
its  legal  duty.* 

We  shall  now  consider  the  charge  out  of  which  the 
ablest  of  the  opponents  of  the  policy  of  increasing  the 
powers  of  the  Commission  have  made  the  most  capital. 
It  has  been  alleged  by  high  authorities  that  the  decisions 
of  the  Commission  are  permeated  with  a  belief  in  the  ap- 
plication of  a  drastic  distance  standard  in  rate-making. 
It  is  contended  that  the  Commission,  if  it  had  the  power, 
would  attempt  to  put  all  localities  upon  an  equal  footing 
and  to  limit  the  area  in  which  an  industry  may  find  a 
market  for  its  products.  Furthermore,  it  is  alleged  that 
the  Commission  would  give  undue  weight  to  geographical 
situation,  and  that  it  would  set  itself  in  opposition  to  the 
policy  of  railroads  in  attempting  to  annihilate  the  dis- 
advantages of  distance. 

Those  who  make  such  charges  as  these,  are  reenforced 
in  their  opinions  as  to  the  attitude  which  the  Commission 
has  assumed  upon  this  point,  by  their  very  logical  con- 
clusions as  to  what  they  think  must  inevitably  result  from 
the  interference  of  any  public  administrative  body  in  the 
business  of  rate-making.  With  due  respect  to  these  great 
authorities,  one  may  venture  the  opinion  that  they  wrongly 
estimate  the  character  of  the  work  which  has  already 
been  done  by  the  Commission,  and  that  a  careful  and 
impartial  examination  of  all  the  cases  which  have  been 
decided  by  that  body  will  reveal  the  fact  that,  on  the 
whole,  their  decisions  have  rested  on  the  broad  grounds  of 
public  policy.  The  Commission  has  allowed  the  utmost 
latitude  to  railway  initiative,  with  the  single  stipulation 

'  Sec  note,  p.  96.  Since  the  passage  of  the  Hepburn  Bill,  in  June, 
190G,  the  Commission  has  several  times  authorized  roads  to  adjust  their 
export  rates  to  meet  chanping  conditions  without  the  previous  notice  and 
publication  which  is  renuired  by  law.  on  condition  that  they  file  with  the 
Commissioa  immediately  a  statement  of  the  rates  actually  charged. 


176    FEDERAL  REGULATION  OF  RAILWAY  RATES 

that  the  charges  should  not  be  extortionate,  and  that  the 
small  shipper  and  the  small  community  should  not  be 
crushed  in  the  interests  of  the  large  shipper  and  the 
stronger  communities. 

Perhaps  one  thing  which  has  led  to  general  misappre- 
hension of  the  character  of  the  Commission's  work,  has 
been  that  investigators  have  concerned  themselves  with 
those  cases  only  in  which  action  was  taken  favorable  to 
the  complainants,  while  they  may  have  overlooked  the 
practically  equal  number  of  decisions  in  which  the  Com- 
mission decided  against  the  complainants.  Indeed,  it  is 
surprising  to  see  the  number  of  cases  in  which  the  Com- 
mission has  held  out  against  popular  clamor,  and  justified 
the  railroads  in  practices  which  the  public  considered  out- 
rageous. 

Within  any  brief  space  here  available,  it  is  impossible 
to  refute  successfully  all  adverse  arguments  which  have 
been  advanced,  and  to  establish  beyond  question  the 
favorable  opinion  expressed  above,  as  to  the  work  of  the 
Commission.  It  must  sufiice,  therefore,  to  cite  only  a  few 
quotations  from  the  rulings  of  the  Commission,  in  certain 
leading  cases,  which  tend  to  show  that  the  Commission 
is  not  bound  by  any  such  narrow  conception  of  the  sub- 
ject as  has  been  commonly  imputed  to  it. 

In  the  New  Orleans  Cotton  Exchange  vs.  Illinois  Cen- 
tral, the  Commission  ruled  as  follows:  ^ 

In  determining  such  questions,  a  comparison  of  rates  based 
upon  the  doctrine  that  the  rate  should  be  the  same  per  ton  mile 
is  not  applicable.  ...  In  solving  questions  of  this  character, 
the  Commission  will  look  at  and  consider  every  fact,  circum- 
stance, and  condition  surrounding  the  traffic.    .    .    . 

From  the  decision  in  the  case  of  Evans  vs.  Oregon 
Navigation  Company,  we  quote  the  following:  ^ 

In  determining  what  is  a  just  and  reasonable  rate  for  a  par- 
ticular commodity,  the  Commission  will  take  into  consideration 
^  3  I.  C.  C.  Rep.  534.  M  I.  C.  C.  Rep.  325. 


A  RATIONAL  PLAN   FOR  PUBLIC   CONTROL  177 

the  earnings  and  expenses  of  operating,  rates  charged  upon  the 
same  commodities  upon  other  roads  as  nearly  similarly  situated 
as  maybe,  the  diversities  between  the  railroad  in  question  and 
such  other  roads,  the  relative  amount  of  through  and  local  busi- 
ness, the  proportion  borne  by  the  commodity  in  question  to  the 
remainder  of  the  local  traffic,  the  market  value  of  the  commodity, 
and  its  gradual  reduction,  the  reductions  made  by  the  carrier 
upon  other  commodities  which  are  consumed  and  necessarily 
required  by  the  producers  of  the  article  in  question,  and  all  the 
other  considerations  affecting  the  traffic  itself,  and  as  related  to 
other  commodities  entering  into  the  charges  of  the  carrier. 

Surely  such  considerations  would  not  harmonize  with  a 
blind  distance  basis  for  determining  the  reasonableness  of 
a  given  rate. 

In  the  case  of  the  Eau  Claire  Board  of  Trade  vs.  Chicago, 
Milwaukee  and  St.  Paul,  we  have  a  similar  declaration 
against  the  distance  system:  * 

The  doctrine  that  transportation  charges  should  be  propor- 
tioned to  distances  between  different  points,  where  those  dis- 
tances are  greatly  dissimilar,  has  never  been  advocated  by  the 
railroads,  nor  recommended  by  the  Commission,  While  dis- 
tance is  an  ever  present  element  in  the  problem  of  rate-making, 
and  not  infrequently  a  controlling  consideration,  the  general 
practice  of  rate-making  is  opposed  to  the  system  of  exact  propor- 
tion, and  there  is  no  opportunity  for  its  application  under  present 
conditions. 

In  the  face  of  this  evidence,  it  is  impossible  to  maintain 
that  the  Commission  is  controlled  by  a  blind  belief  in  the 
wisdom  of  the  policy  of  applying  a  uniform  distance 
standard  in  rate-making. 

Finally,  it  has  been  alleged  that  the  Commission  has 
steadily  refused  to  give  its  sanction  to  what  are  known  as 
group,  or  blanket  rates,  by  which  all  competitors  within  a 
given  section  are  ])laced  upon  an  equal  footing,  the  more 
distant  points  enjoying  the  same  rates  as  tliose  much 
nearer  the  common  market.  This  contention,  however,  is 
'  5  I.  C.  C.  Rep.  2Gl. 


178    FEDERAL  REGULATION  OF  RAILWAY  RATES 

scarcely  sustained  by  the  facts.  There  are  a  few  cases  in 
which  group  rates  over  broad  areas  have  been  declared 
unlawful,  but  in  almost  every  such  instance,  it  has  not 
been  the  group  rate  itself  which  the  Commission  has  con- 
demned, but  the  excessive  charge  to  the  nearer  points.^ 

In  fact,  there  are  many  cases  in  which  the  Commission 
has  expressly  upheld  the  legality  of  group  rate  over  broad 
areas.  In  the  case  of  William  P.  Rend  vs.  Chicago  and 
Northwestem,^  the  Commission  upheld  group  rates  on 
coal  from  the  mines  of  a  large  section  extending  across  the 
state  of  Illinois,  from  which  points  blanket  rates  were 
made  to  points  in  a  much  larger  section,  extending  across 
the  state  of  Wisconsin,  and  embracing  practically  the 
whole  of  Minnesota  and  the  Dakotas. 

The  charge  has  frequently  been  made  that  the  Com- 
mission has  blindly  ordered  reduction  of  rates,  without 
regard  to  the  ultimate  effect  of  the  reduction  of  the  rate 
upon  other  rates,  and  upon  other  interests  than  those  im- 
mediately concerned  in  the  case  in  question.  In  fact 
Professor  H.  R.  Meyer  has  made  the  statement  that  in 
practically  every  case  where  an  American  railway  practice 

1  This  was  true  in  the  famous  New  York  Milk  Case  (7  I.  C.  C.  Rep. 
92)  which  has  been  so  roundly  condemned  in  many  quarters.  It  is  certain 
that  some  of  the  reasoning  in  that  case  might  be  justly  censured,  but  the 
conclusion  arrived  at  was  fairly  sound.  It  was  not  the  low  rate  of  thirty- 
two  cents  per  can  on  milk  brought  from  a  distance  of  250  miles  which 
was  objected  to,  but  the  excessive  rate  of  thirty-two  cents  on  milk  from 
points  within  a  few  miles  of  the  city.  The  order  of  the  Commission  re- 
ducing the  rates  from  the  nearer  points  left  the  railroads  perfectly  free  to 
make  simUar  reductions  from  the  more  distant  points.  The  decision 
certainly  has  the  appearance  of  being  conservative,  the  greatest  reduction 
ordered  being  only  nine  cents,  which  still  allowed  a  rate  of  twenty-three 
cents  from  points  only  fifteen  miles  distant  from  the  city.  If  the  order  of 
the  Commission  was  as  unjust  as  some  would  now  have  us  beheve,  why 
did  not  the  railroads  carry  the  case  to  the  courts  on  appeal,  or  simply 
refuse  to  obey  the  order,  as  they  have  done  in  other  cases?  From  the 
liberal  way  in  which  the  Interstate  Commerce  Law  had  previously  been 
interpreted  by  the  courts,  it  is  evident  that  the  railroads  had  no  reason 
to  fear  that  they  would  not  be  accorded  fair  treatment  at  the  hands  of 
the  court.  Their  failure,  therefore,  to  appeal  the  case  would  seem  to 
indicate  that  the  contention  of  the  Commission  was  not  without  some 
justification. 

■  2  I.  C.  C.  Rep.  540. 


A  RATIONAL  PLAN  FOR  PUBLIC  CONTROL    179 

has  been  condemned,  the  Commission  has  been  blind  to 
all  interests  save  those  of  the  complainant.  With  regard 
to  this  point,  I  quote  from  a  further  ruling  in  the  case 
just  cited: 

The  question  of  relative  injustice  must  be  viewed  upon 
broader  grounds  than  a  mere  balancing  of  one  rate  against  an- 
other. A  reduction  which  will  throw  into  confusion  an  adjust- 
ment of  rates  over  a  large  section  of  the  country  which  are  not 
claimed  to  be  unreasonable  in  themselves,  should  not  be  required 
without  a  clear  right  thereto  exists  under  the  law. 

In  the  case  of  the  Imperial  Coal  Co.  vs.  Pittsburg  and 
Lake  Erie,  the  Commission  upheld  a  similar  group  rate 
on  coal  shipped  to  points  on  Lake  Erie  from  a  section 
around  Pittsburg  eighty  miles  broad,  thus  placing  the  mines 
over  this  whole  area  in  a  position  of  substantial  equality. 
The  following  is  an  extract  from  the  decision  of  the  Com- 
mission in  this  case:  ^ 

A  group  rate  for  a  particular  district  upon  a  commodity  for 
which  a  large  demand  exists,  and  intended  to  place  producers 
in  the  district  upon  an  equality  among  themselves,  and  with  pro- 
ducers of  the  same  commodity'  from  other  districts,  all  comf>eting 
in  a  common  market,  is  not  unlawful  merely  on  account  of  differ- 
ences in  the  geographical  location  of  the  diflFerent  producers, 
and  their  respective  distances  from  market.  ...  In  determin- 
ing the  question  of  whether  undue  prejudices  arise  from  the  en- 
forcement of  a  given  rate,  distance  is  only  one  of  the  factors,  and 
other  material  facts,  such  as  the  character  and  quality  of  the 
commodity,  cost  of  production,  the  extent  and  nature  of  the  com- 
petition in  the  business  itself  and  by  other  transp>ortation  lines, 
the  interests  of  the  public  in  the  use  of  the  commodity,  and  its 
market  cost,  are  to  be  considered. 

In  the  case  of  Nathaniel  W.  Howell  vs.  The  New  York, 
Lake  Erie  and  Western,  tlie  Commission  held  as  follows :  ^ 

Prejudice  and  advantage  becomes  undue  and  unreasonable 
when  the  results  are  such  as  to  effect  some  tangible  injury  to  the 
'  2  I.  C.  C.  Rep.  618.  »  2  I.  C.  C.  Rep.  272. 


180   FEDERAL  REGULATION  OF  RAILWAY  RATES 

complaining  party.  Without  proof  of  damages  resulting  to  the 
complainants  an  advantage  in  rates  as  related  to  distance  is  not 
necessarily  undue  or  unreasonable,  no  substantial  difference  in 
the  expense  appearing  to  exist.  .  .  .  The  existing  arrangements 
by  which  the  same  rate  is  charged  for  the  transportation  of  milk 
from  all  points  reached  by  the  regular  daily  route  of  milk  trains 
of  the  defendant  roads  is  found  not  to  be  illegal,  and  on  the 
whole  to  be  the  best  system  which  can  be  devised  for  the  gen- 
eral good  of  all  interested  parties. 

The  foregoing  quotations  seem  to  disprove  many  of  the 
charges  which  have  been  made  against  the  personnel  of 
the  present  Commission,  by  the  more  radical  opponents 
of  rate  regulation.  Such  statements  as  that  of  Professor 
H.  R.  Meyer,  which  is  to  the  effect  that  the  Commission 
has  condemned  "all  but  one  of  the  rate  practices  by  which 
the  railways  have  made  themselves  the  most  powerful 
single  factor  in  developing  the  resources  of  our  country," 
and  that  of  Mr.  H.  T.  Newcomb,  who  suggests  that  the 
Commission  "manufactures  a  large  part  of  the  business  it 
handles,"  are  unreasonably  extravagant,  and  so  absurd 
upon  their  very  face,  that  they  serve  to  discredit  work 
which  might  otherwise  appear  to  be  of  great  value. ^ 

The  main  objection  to  the  personnel  of  the  present 
Commission  arises  from  the  inconsistency  of  its  functions, 
which,  the  commissioners  themselves  are  willing  to  admit, 
incapacitates  them  for  the  highest  efficiency  in  judging  of 
the  reasonableness  of  the  rates  complained  of.  That  body 
holds  the  anomalous  relationship  to  the  railroads  of  both 
police  magistrate,  prosecuting  attorney,  and  judge.  The 
law  imposes  upon  it  both  the  administrative  duty  of  in- 
vestigating alleged  violations  of  the  law  and  of  prosecuting 
offenders,  while  at  the  same  time  it  is  given  the  quasi- 

*  The  fundamental  distinction  between  this  case,  and  the  milk  case 
already  referred  to.  is  that  in  this  case  the  rates  from  the  nearer  points 
were  not  found  to  be  unreasonable  in  themselves,  which  was  the  ground 
upon  which  the  other  case  was  decided. 

2  See  H.  R.  Meyer,  ante  cit.  p.  440.  Also  H.  T.  Newcomb,  The  Work 
of  the  Interstate  Commerce  Commission,  p.  17. 


I 


A  RATIONAL  PLAN  FOR  PUBLIC  CONTROL    181 

judicial  duty  of  sitting  as  a  court  to  try  the  cases  in  which 
it  is  itself  frequently  the  prosecutor.  Upon  this  j)oint  I 
quote  from  the  testimony  of  Mr.  Charles  A.  Prouty,  one 
of  the  most  prominent  members  of  the  Commission.' 

The  Interstate  Commerce  Commission  is  at  present  an  execu- 
tive body.  It  is  charged  with  the  duty,  within  certain  Hmits,  of 
executing  the  law.  It  is  our  duty  to  enforce  the  criminal  features 
of  the  law.  Now,  I  am  perfectly  clear  in  my  own  way  that  those 
powers  should  be  taken  away  from  the  Interstate  Commerce 
Commission.  In  the  first  place,  a  body  of  five  men  is  too  cum- 
bersome. ...  In  the  next  place,  I  do  not  think  you  ought  to 
combine  in  the  same  tribunal  or  the  same  body  the  executive, 
the  administrative,  and  judicial  functions.  That  is  my  attitude 
as  a  commissioner.  If  it  is  my  duty  to  investigate,  to  unearth 
criminal  violations  of  the  law,  I  think  I  am  very  likely  to  get  into 
a  frame  of  mind  which  unfits  me  to  dispassionately  pass  upon 
the  rates  made  by  the  defendant ;  so  I  say  now,  and  I  have  always 
said,  that  you  ought  to  take  away  from  the  Interstate  Com- 
merce Commission,  and  put  either  in  the  Department  of  Justice 
or  in  the  Department  of  Commerce  and  Labor,  what  I  may  call 
the  executive  functions  of  the  Commission.  Now  the  commis- 
sion has  certain  judicial  functions.  I  do  not  think  that  the  Com- 
mission as  now  constituted,  hearing  cases  as  it  hears  them,  re- 
ceiving testimony  as  it  receives  testimony,  ought  to  be  charged 
with  the  judicial  duty  of  trving  a  damage  suit.  .  .  .  When  it 
is  done,  it  amounts  to  nothing.  The  order  of  the  Commission  is 
merely  prima  facie.  The  same  suit  must  be  tried  over  again, 
and  I  believe  it  would  be  better  to  try  that  suit  in  the  first  instance 
in  the  courts. 

We  have  now  discovered  the  tw^o  main  considerations 
why  we  should  not  expect  future  decisions  of  the  present 
Commission  to  be  of  the  highest  character  desiral)le.  In 
the  first  place,  the  Commission  is  bound  to  be  more  or 
less  prejudiced  by  its  prevnous  interpretations  of  the  law, 
which  the  courts  have  held  to  be  erroneous.  In  fact,  ac- 
cording to  the  public  utterances  of  some  of  the  commission- 

•  Statement  of  Mr.  Charles  A.  Prouty  b)efore  Senate  Committee. 
May  18.  1905. 


182    FEDERAL  REGULATION  OF  RAILWAY  RATES 

ers,  these  old  interpretations  still  seem  more  reasonable  to 
them  than  the  construction  placed  upon  the  law  by  the 
courts.  Secondly,  the  inconsistent  functions  of  the  Com- 
mission tend  to  unfit  it  for  the  most  efficient  service  in  any 
one  branch  of  its  various  duties.  It  would  seem,  therefore, 
that  the  best  results  may  be  obtained  by  the  creation  of  a 
separate  tribunal  for  the  purpose  of  trying  the  judicial 
questions  at  issue,  thus  leaving  to  the  present  Commission 
only  the  administrative  and  executive  functions  which  it 
now  exercises. 

The  main  objections  to  the  present  system  of  Federal 
supervision  of  rates  are:  first,  the  long  delays  which  the 
shipper  frequently  endures  before  he  is  able  to  secure 
redress;  secondly,  the  existence  of  elements  in  the  situation 
which  render  the  Commission  as  it  is  now  constituted, 
unfit  for  the  most  efficient  service;  thirdly,  the  inability 
of  the  tribunal  whose  duty  it  is  to  try  cases  of  alleged 
unreasonable  rates  promptly  to  enforce  its  order  and  to 
issue  an  injunction  compelling  the  railroad  to  cease  and 
desist  from  charging  the  unlawful  rates;  and  finally,  the 
inability  of  the  same  body  to  name  the  extent  to  which  the 
unreasonable  rate  in  question  is  unlawful.  We  shall 
examine  but  two  or  three  of  the  remedies  which  have 
been  proposed. 

In  the  first  place,  it  has  been  suggested  that  the 
Commission  be  allowed  to  retain  its  present  power  of 
simply  declaring  a  rate  unlawful,  but  that  the  carrier 
should  be  obliged  to  modify  its  rates  at  once,  in  conformity 
with  the  order  of  the  Commission,  and  to  take  upon  itself 
the  burden  of  applying  to  the  courts  for  relief  from  the 
application  of  the  order. 

It  is  evident  that  a  law  conferring  such  power  upon  the 
Commission  would  be  unconstitutional.  The  question 
whether  a  given  rate  is  in  conformity  with  the  law  or  not 
is  purely  of  a  judicial  character.  According  to  Article  III, 
Section  1,  of  the  Constitution,  the  judicial  power  of  the 


A  RATIONAL  PLAN  FOR  PUBLIC  CONTROL    183 

United  States  is  vested  in  one  supreme  court,  and  in  such 
inferior  courts  as  Congress  shall  from  time  to  time  estab- 
lish. If,  tlierefore,  the  Commission  is  given  the  power  of 
determining  the  lawfulness  of  a  given  rate,  and  of  tem- 
porarily enforcing  its  order,  it  must  be  constituted  a  court 
in  accordance  with  the  provisions  of  the  Constitution;  i.  e., 
the  judges  should  hold  office  during  good  behavior,  their 
salaries  should  not  be  diminished  during  tlieir  term  of 
office,  etc. 

The  law  lays  down  certain  principles;  as,  for  example, 
the  provision  that  all  rates  shall  be  reasonable,  and  that 
they  shall  not  be  unduly  discriminatory.  To  leave  to  an 
administrative  body  the  duty  of  determining  whether 
this  law  has  been  violated,  would  be  as  clearly  uncon- 
stitutional as  to  leave  to  a  police  officer  the  duty  of  de- 
termining whether  or  not  a  given  individual  is  guilty 
of  a  crime,  and  of  punishing  him  for  an  alleged  offense. 
The  only  condition  which  prevents  the  present  Interstate 
Commerce  Law  from  being  declared  unconstitutional  is 
that  the  findings  of  the  Commission  have  no  legal  force 
whatever. 

The  conclusion  just  stated  is  sustained  by  several  im- 
portant decisions.  In  the  maximum  rate  decision,*  the 
Supreme  Court  clearly  held  that  the  determination  of  the 
reasonableness  of  a  given  rate  was  a  judicial  and  not  a 
legislative  question.  In  the  case  of  Chicago,  Milwaukee 
and  St.  Paul  vs.  Minnesota,^  the  Supreme  Court  held  as 
follows : 

The  question  of  the  reasonableness  of  a  rate  of  char^  for 
transportation  by  a  railroad  company,  involving,  as  it  does,  the 
element  of  reasonableness  both  as  regards  the  company  and  as 
regards  the  public,  is  eminently  a  question  for  judicial  investiga- 
tion, requiring  due  process  of  law  for  its  determination. 

Equally  important  in  establishing  this  point  of  view 
1  167  U.  S.  479.  »  134  U.  S.  418. 


184    FEDERAL  REGULATION  OF  RAILWAY  RATES 

is  the  important  dictum  in  the  ease  of  Reagan  vs.  Farmers' 
Loan  and  Trust  Company.* 

Yet  it  has  always  been  recognized  that  if  a  carrier  attempted 
to  charge  a  shipper  an  unreasonable  sum,  the  courts  had  juris- 
diction to  inquire  into  the  matter,  and  to  award  to  the  shipper 
any  amount  exacted  from  him  in  excess  of  a  reasonable  rate.  .  ,  , 

If  then,  the  determination  of  the  lawfulness  of  a  given 
rate  is  a  judicial  question,  it  should  properly  be  left  to  duly 
constituted  courts.  What  is  the  use  of  having  a  Commis- 
sion sit  in  a  long  judicial  process,  and  write  a  lengthy 
opinion  upon  every  case  which  comes  before  it,  when 
neither  its  findings  of  facts  nor  a  line  of  its  opinion  have 
any  legal  value  whatever? 

Nor  would  it  be  constitutional  to  make  its  findings  of 
fact  final,  for  such  findings  are  essentially  of  a  judicial 
nature.  Even  the  evidence  which  is  taken  by  a  quasi- 
prosecuting  body  which  has  no  judicial  character,  and 
which  is  not  bound  by  the  ordinary-  rules  of  evidence,  could 
not  be  used  as  an  exclusive  basis  for  subsequent  judicial 
action.  It  follows  that  no  remedy  for  the  present  unsatis- 
factory state  of  affairs  lies  in  any  enlargement  of  the  powers 
already  possessed  by  the  Commission. 

The  other  alternative  is  to  confer  upon  the  Com- 
mission an  entirely  new  power,  i.  e.,  the  discretionary 
power  of  fixing  rates.  This  has  been  the  intent  of  most 
of  the  recent  bills  brought  before  Congress,  as  for  example 
of  the  Hepburn  Bill.^  In  some  respects  the  proposed 
measure  is  conservative  and  salutary.  It  does  not  confer 
upon  the  Commission  the  power  to  fix  differentials  or  to 
establish  minimum  rates.  It  includes  certain  salutary  pro- 
visions calculated  to  remedy  various  evils  which  have 
grown  up  in  connection  with  our  transportation  system, 
and  for  which  our  laws  have  hitherto  failed  to  provide  ad- 
equately, but  its  most  important  provision  is  that  which 

1  154  U.  S.  362. 

'  Passed  and  signed  by  the  President,  June  29,  1906. 


A  RATIONAL  PLAN  FOR  PUBLIC  CONTROL    185 

confers  upon  the  Commission  the  power  to  prescribe  max- 
imum rates  in  all  cases  of  complaint,  after  allowing  due 
hearing  to  all  parties  concerned.  This  power,  which  the 
courts  have  held  has  not  been  conceded  to  the  Commission, 
it  has  in  fact  never  exercised. 

There  is  a  vast  difference  between  determining  the 
extent  to  which  a  given  rate  is  unlawful,  and  the  exercise 
of  a  discretionary  power  to  fix  a  maximum  rate  to  apply 
for  the  future.  For  instance,  the  railroad  may  be  charging 
a  rate  of  one  dollar  upon  a  given  article.  It  is  possible 
that  any  rate  in  excess  of  ninety  cents  might  be  unreason- 
able, within  the  meaning  of  section  one  of  the  act  to  regu- 
late commerce.  To  order  the  road  to  cease  charging  more 
than  ninety  cents  for  the  given  ser^^ce,  would  be  to  compel 
it  to  cease  doing  that  which  is  unlawful,  which  is  a  legiti- 
mate function  of  a  court  of  equity.  On  the  other  hand,  if 
the  railroad  were  ordered  to  charge  no  more  than  seventy- 
five  cents,  we  have  a  clear  exercise  of  discretionary'  power, 
such  as  the  Commission  will  possess  under  the  Hepburn 
law.  Before  that  law  takes  effect,  neither  the  courts 
nor  the  Commission  can  reduce  such  a  rate  to  a  point 
b^ow  ninety  cents,  at  which  point  it  ceases  to  be  unla'^^'ful. 
Under  that  law,  however,  the  Commission  will  have  full 
power  to  name  any  rate  it  sees  fit,  with  the  single  provision 
that  it  shall  not  take  the  property  of  the  railroad  without 
due  process  of  law.  Perhaps  any  rate  which  might  be  fixed 
above  forty  cents  might  not  be  confiscatory-.  The  Com- 
mission might,  therefore,  establish  a  rate  an}-A\'here  be- 
tween forty  and  ninety  cents,  entirely  at  its  discretion,  and 
as  we  shall  presently  show,  the  courts  would  have  no 
power  to  re\'iew  orders  which  were  based  upon  the  right  to 
exercise  this  discretionary  power. 

It  is  not  our  intention,  at  this  point,  to  reopen  the  sul> 
ject  of  the  advisability  of  ginng  the  Commission  this 
power.  That  point  has  already  been  dealt  with.  It  will 
be  assumed,  therefore,  tliat  we  have  proved  that  what  is 


186    FEDERAL  REGULATION  OF  RAILWAY  RATES 

needed  is  a  better  and  more  expeditious  method  of  com- 
pelling the  railroads  to  conform  to  the  existing  law,  rather 
than  a  system  of  government-made  rates. 

The  constitutionality  of  the  delegation  of  the  dis- 
cretionary power  of  fixing  rates  to  a  commission  has 
been  seriously  questioned.  The  function  of  rate-making 
has  been  held  to  be  legislative  in  character,  and  it  is  one 
of  the  fundamental  principles  of  constitutional  law,  that 
legislative  power  cannot  be  delegated.  It  is  also  urged 
that  the  power  of  Congress  over  interstate  commerce  is 
not  coextensive  with  the  power  of  the  States  over  their 
internal  commerce.  In  the  first  place,  the  powers  of  Con- 
gress are  limited  to  those  expressly  delegated  or  implied, 
while  the  States  possess  every  power  which  is  not  denied 
them.  Furthermore,  railroads  do  not  derive  their  incor- 
poration nor  the  right  to  exercise  the  power  of  eminent 
domain  from  Congress,  but  from  the  States.  It  is  also  al- 
leged that  the  right  to  engage  in  interstate  commerce  is  not 
a  privilege  which  may  be  conferred  by  Congress,  or  one 
which  may  be  withheld  by  that  body,  but  a  constitutional 
right  of  every  citizen  of  the  country.  The  consensus  of 
opinion,  however,  is  against  those  few  able  jurists  who 
doubt  the  constitutional  authority  of  Congress  to  fix 
rates  in  interstate  transportation. 

On  the  other  hand,  more  serious  doubts  are  entertained 
as  to  the  constitutionality  of  the  delegation  of  this  power  to 
an  administrative  commission.  This  particular  question  has 
never  been  decided,  because  Congress  has  never  seen  fit  to 
delegate  that  power.  The  dictum  of  the  Supreme  Court 
in  the  maximum  rate  decision,  however,  would  seem  to 
indicate  that  in  the  opinion  of  the  highest  court  in  the  coun- 
try. Congress  may  delegate  that  power  to  a  commission :  * 

Congress  may  itself  prescribe  rates;  or  it  may  delegate  that 
duty  to  some  subordinate  tribunal;  or  it  may  leave  with  the 
companies  the  right  to  fix  rates.  .  .  . 
»  167  U.  S.  479. 


A  RATIONAL  PLAN  FOR  PUBLIC  CONTROL  187 

Also,  in  the  case  of  Field  vs.  Clark,'  the  Supreme  Court 
upheld  the  reciprocity  provision  of  the  McKinley  Act  of 
1890,  which  authorized  the  President  to  place  retaliatory 
duties  upon  commodities  imported  from  other  nations 
whose  reciprocal  tariff  schedules  he  deemed  unjust.  The 
distinction  made  in  this  case  was  that  such  a  provision 
was  not  a  delegation  of  legislative  power,  but  merely  the 
delegation  of  the  powder  of  determining  the  facts  upon 
which  a  law  already  made  should  become  operative.  Even 
if  such  a  distinction  as  this  is  valid,  it  is  difficult  to  carry 
the  reasoning  over  into  the  field  of  the  delegation  of  the 
discretionary  power  of  fixing  rates  at  any  point  above  that 
where  they  become  so  low  as  to  be  confiscatorj'.  If  this 
power  were  granted  to  the  Commission,  ever}-  decision  of 
that  body  would  be  in  effect  a  law  of  wide  import,  and  we 
should  then  have  a  Federal  legislative  body,  second  in 
importance  only  to  Congress  itself.  It  is  doubtful  whether 
such  a  provision  would  be  consistent  with  the  constitutional 
provision  that  all  of  the  legislative  power  of  the  United 
States  should  be  vested  in  Congress. 

Such  cases,  however,  have  frequently  come  before  the 
State  courts,  and  there  has  not  been  a  single  decision 
against  the  constitutional  right  of  the  legislature  of  the 
State  to  grant  this  power  to  a  commission.  These  cases 
were  practically  all  decided  upon  the  same  grounds.^  From 
the  opinion  in  the  Georgia  case,  which  is  tj-pical,  we  quote 
the  following: 

The  true  distinction,  therefore,  is  between  the  delegation  of 
power  to  make  law,  which  necessarily  involves  a  discretion  as 
to  what  it  shall  be,  and  conferring  an  authority  or  discretion  as 
to  its  execution  to  be  exercised  under  and  in  pursuance  of  the 
law.  The  first  cannot  be  done;  to  the  latter  no  objection  can 
be  made. 

1  143  U.  S.  649. 

'  Georgia  R.  R.  Co.  vs.  Smith.  70  Ga.  Ren.  694.  Tillcv  vs.  Railway 
Co.,  4  Woods,  4^7.  McWherton  vs.  Pensacol.-i  R.  R.  Co..  54  Fla.  417. 
Express  Co.  vs.  Railway  Co.,  Ill  N.  C.  463.  Chicago,  etc.,  Railway  Co. 
V*.  Dey,  35  Fed.  Rep.  866. 


188    FEDERAL  REGULATION  OF  RAILWAY  RATES 

However,  it  is  by  no  means  certain  that  the  Federal 
Constitution  would  be  interpreted  as  these  State  constitu- 
tions were,  and  the  question  as  to  the  way  in  which  this 
point  will  finally  be  decided  by  the  Supreme  Court,  can 
only  be  a  matter  of  speculation.  However,  since  Congress 
probably  has  the  power  to  fix  interstate  rates,  and  since 
the  intelligent  exercise  of  that  power  by  that  body  would 
be  entirely  out  of  the  question,  it  must  not  be  supposed 
that  this  is  a  casus  omissus  of  the  Constitution,  and  that 
Congress  has  no  right  to  do  that  which  is  the  only  practical 
method  of  carrying  its  admitted  powers  into  execution. 

The  other  constitutional  limitation  affecting  the  pro- 
posed delegation  of  rate-fixing  power  to  a  commission,  is 
the  provision  which  forbids  the  giving  of  preference  to  the 
ports  of  one  State  over  those  of  another.  In  the  Wheeling 
Bridge  case,^  it  was  held  that  this  clause  did  not  apply  to 
every  incidental  preference  which  might  result  from  a 
reasonable  exercise  of  the  admitted  powers  of  Congress, 
and  manifestly  it  does  not  mean  that  Congress  must  ap- 
portion all  its  expenditures,  such  as  those  for  harbor 
improvements,  with  mathematical  precision  among  the 
ports  of  the  various  States.  The  object  of  this  provision 
was  evidently  to  prevent  direct  discriminations  which 
would  put  one  port  at  a  permanent  disadvantage  as  against 
another.  What  could  accomplish  this  in  a  more  direct  and 
immediate  way  than  an  unequal  adjustment  of  railway 
rates  ?  Under  the  present  system,  the  railways  continually 
discriminate  against  the  port  with  the  natural  advantages, 
and  they  endeavor  to  put  all  ports  upon  an  equal  footing. 
Thus  the  rate  from  Chicago  to  Baltimore  is  just  enough 
lower  than  the  rate  from  Chicago  to  New  York,  to  make 
the  through  rates,  via  either  point,  practically  the  same  to 
Liverpool.  In  this  way  competition  is  encouraged,  and 
population  and  commerce  is  decentralized. 

If,  however,  the  rate-making  power  were  lodged  in  a 
1  18  Howard,  421. 


A  RATIONAL  PLAN  FOR  PUBLIC   CONTROL    189 

gcvcrnmcntal  tribunal,  it  would  not  be  lawful  for  that 
body  to  authorize  such  preferences  as  had  previously  been 
given  to  such  ports  as  Baltimore  and  Norfolk.  The  Com- 
mission would  be  violating  the  constitutional  provision, 
if  it  were  in  this  way  to  confiscate  the  natural  advantages 
of  such  ports  as  New  York  through  its  regulation  of  rail- 
way rates.  If  the  Commission  should  sanction  a  lower 
rate  to  Baltimore  than  to  New  York,  it  would  obviously 
be  granting  an  unlawful  preference  to  Baltimore.'  In 
other  words  it  is  possible  that  this  most  beneficent  practice 
of  the  railroads  would  have  to  be  abandoned,  owing  to 
tlie  inability  of  the  Commission  to  give  it  legal  sanction. 
At  all  events  the  conferring  of  the  power  to  fix  rates  could 
not  be  held  to  be  unconstitutional,  simply  because  circum- 
stances might  arise  in  which  that  power  might  be  uncon- 
stitutionally exercised. 

The  next  point  which  we  wish  to  make  is  that  when 
a  rate  is  made  by  the  Commission  in  pursuance  of  this 
discretionary  power,  it  would  not  be  subject  to  judicial 
review,  except  upon  the  grounds  of  the  legality  of  the 
order.  Such  an  order  would  have  the  same  force  as  a 
legislative  enactment,  and  the  courts  would  have  no 
authority  to  set  it  aside,  unless  it  appeared  that  it  violated 
the  constitutional  rights  of  some  interested  party.  In  fact, 
the  courts  have  frequently  aj95rmed  that  they  have  no 
authority  to  review  tlie  discretionary  acts  of  tlie  political 
agents  of  the  Government. 

In  the  case  of  the  San  Diego  Land  Co.  vs.  National 
City,2  we  have  an  emphatic  declaration  of  this  principle: 

The  jiidioian-  ought  not  to  interfere  with  the  collection  of 
rates  established  under  legislative  sanction,  unless  they  are  so 
plainly  and  palpably  unreasonable  as  to  make  their  enforcement 
equivalent  to  the  taking  of  property  for  public  use  without  com- 

'  If  the  Commission  is  not  given  the  power  to  name  differentials  or  to 
set  minimum  rates,  such  questions  will  not  be  so  likely  to  arise. 
»  174  U.  S.  739. 


190    FEDERAL  REGULATION  OF  RAILWAY  RATES 

pensation,  as  under  all  circumstances  is  just  both  to  the  owner 
and  to  the  public;  that  is,  judicial  interference  should  never 
occur,  unless  the  case  presents  clearly  and  beyond  all  doubt, 
such  a  flagrant  attack  upon  the  rights  of  property,  as  to  compel 
the  court  to  say  that  the  rates  prescribed  will  necessarily  have 
the  effect  to  deny  just  compensation  for  private  property  taken 
for  public  use.* 

The  extreme  reluctance  of  the  courts  to  declare  a  rate 
confiscatory,  after  it  has  been  fixed  by  the  political  agents 
of  government,  is  shown  by  the  fact  that  during  the  twenty 
years  or  more  in  which  State  commissions  have  exercised 
the  power  of  rate-fixing,  but  four  or  five  cases  have  gone 
to  the  courts  on  the  grounds  that  the  rate  fixed  were  con- 
fiscatory, and  in  the  majority  of  those  cases  in  which  this 
point  was  at  issue,  the  courts  have  decided  in  favor  of  the 
legality  of  the  order.^  We  conclude,  therefore,  that  the 
delegation  to  a  commission  of  discretionary  power  in 
fixing  rates  in  all  cases  of  complaint,  must  be  regarded  a 
radical  departure  from  any  system  of  Federal  regulation 

1  Other  cases  in  which  the  same  principle  is  asserted  are :  The  Chicago 
and  Grand  Trunk  vs.  Wellman,  143  U.  S.  399.  Reagan  vs.  Farmers' 
Loan  and  Trust  Co.,  154  U.  S.  362.  Smyth  vs.  Ames,  169  U.  S.  466. 
Henderson  Bridge  Co.  vs.  Kansas  City,  173  U.  S.  592. 

^  Just  as  this  is  going  to  press,  word  has  come  that  the  Supreme  Court 
of  the  United  States  has  rendered  a  strong  opinion  affirming  a  deci- 
sion of  the  Supreme  Court  of  Florida  which  in  turn  had  sustained  an 
order  of  the  railway  commission  of  that  State  which  imposed  a  maxi- 
miun  rate  of  one  cent  per  ton  mile  on  phosphates,  which  traffic  consti- 
tuted about  17  per  cent  of  the  carriers'  business. 

It  was  strongly  urged  by  the  carriers  that  this  rate  was  so  low  as  to  be 
coniSscatory,  but  the  Supreme  Court  held  that  the  burden  of  proof  was 
on  the  railroads  to  show  that  rates  which  had  been  promulgated  by  a 
commission  in  pursuance  of  powers  conferred  upon  it  by  the  legislature, 
were  so  low  as  to  clearly  and  necessarily  deprive  them  of  the  right  to  earn 
a  fair  return  upon  their  capital  investment. 

It  is  clear  that  this  is  a  difficult  matter  where  the  rates  which  have  been 
fixed  by  the  commission  apply  to  only  a  single  commodity,  as  was  the 
case  in  the  particular  instance  under  discussion.  Only  under  extraordi- 
nary circumstances  would  it  be  possible  to  show  that  such  a  rate  would 
necessarily  be  confiscatory,  while  if  the  Commission  had  been  empowered 
to  reduce  the  rate  only  in  case  the  existing  rate  were  clearly  proved  to 
be  unreasonable,  the  tables  would  have  been  entirely  reversed,  and  it  is 
probable  that  the  order  of  the  commission  in  such  a  case  would  have 
been  held  invalid. 


A  RATIONAL  PLAN  FOR  PUBLIC  CONTROL    191 

which  has  been  practiced  in  the  past.  The  general  dis- 
satisfaction of  shippers  with  rates  made  by  the  railroads, 
would  compel  the  adjudication  of  nearly  every  important 
rate.  Responsibility  for  rates  charged  would  be  trans- 
ferred from  the  railroads  to  the  Commission,  and  the  system 
would  be  attended  with  all  the  evils  which,  we  have  already 
pointed  out,  would  inevitably  be  concomitant  with  any 
system  of  government  rate-making. 

Considerable  doubt  has  been  expressed  as  to  the 
meaning  of  the  amendment  offered  to  the  Hepburn  Bill 
providing  for  judicial  review  of  the  order  of  the  Commis- 
sion, and  for  temporary  injunction  to  prevent  its  execution. 
If  the  intention  were  to  give  discretionary  power  to  the 
courts  to  review  the  orders  of  the  Commission  with  respect 
to  their  wisdom  or  policy,  it  is  ob\'iously  unconstitutional, 
since,  as  we  have  already  pointed  out,  such  a  power  can- 
not be  conferred  upon  the  courts.  If  it  is  the  intention  to 
give  to  the  courts  the  right  to  review  the  orders  of  the 
Commission  on  the  ground  that  some  of  the  constitutional 
rights  of  the  carrier  or  other  interested  parties  have  been 
violated,  the  amendment  is  useless,  for  the  courts  would 
have  that  power  an}^way,  and  it  would  clearly  be  uncon- 
stitutional to  deny  it  to  them.  This  point  was  expressly 
decided  in  the  case  of  Chicago,  ^lilwaukee,  and  St.  Paul 
vs.  Minnesota,  in  which  it  was  held  that  a  law  of  Minnesota 
which  made  the  action  of  its  commission  final,  and  did 
not  permit  of  judicial  review,  was  unconstitutional.' 

If,  however,  the  intention  of  the  amendment  was  to  give 
to  the  courts  the  right  to  review  the  question  of  the  reason- 
ableness of  the  original  rate  as  well  as  the  legality  of  the 
rate  fixed  by  the  Commission,  its  meaning  gives  rise  to 
considerable  doubt.  It  is  quite  possible  that  if  the  clause 
giving  the  Commission  the  power  to  substitute  that  which 
it  considers  a  reasonable  rate  for  that  which  is  found  to  be 
unreasonable,  may  be  construed  as  allowing  it  to  substi- 
'  134  U.  S.  418. 


192   FEDERAL  REGULATION  OF  RAILWAY  RATES 

tute  a  rate  only  for  that  which  already  is  actually  unrea- 
sonable, according  to  the  provisions  of  the  Interstate 
Commerce  Law,  the  courts  may  hold  that  the  exercise 
of  the  discretionary  power  of  the  Commission  is  lawful, 
only  when  the  existing  rate  may  be  judicially  declared 
unlawful.  If  the  proposed  amendment  becomes  a  part 
of  the  law,  and  this  interpretation  is  placed  upon  it,  the 
courts  will  still  retain  the  power  to  set  aside  the  orders 
of  the  Commission  much  as  they  have  done  in  the  past.^ 

We  are  now  ready  to  propose  a  plan,  alternative  to  that 
of  giving  to  the  Commission  the  discretionary  power  of 
fixing  rates,  which  we  believe  we  have  shown  would  be 
attended  with  serious  evils.  The  Interstate  Commerce 
Law  provides  that  the  rates  of  common  carriers  engaged 
in  interstate  commerce  shall  be  reasonable  and  not  unduly 
discriminatory.  It  is  not  so  much  a  system  of  government- 
made  rates  which  the  public  demands,  as  a  more  expedi- 
tious plan  for  punishing  and  preventing  violations  of  this 
law. 

The  question  as  to  what  constitutes  an  unreasonable 
rate  within  the  meaning  of  the  law,  is,  as  we  have  already 

1  The  recent  action  of  the  Senate  in  striking  out  the  words  "in  its 
judgment,"  may  result  in  defeating  the  main  purpose  of  the  bill.  This 
will  give  the  Commission  the  power  only  to  substitute  a  reasonable  rate 
for  that  which  is  found  to  be  unreasonable.  The  courts  may  now  construe 
the  law  as  giving  them  the  right  to  review  the  question  of  the  reasonable- 
ness of  the  original  rate.  If  the  original  rate  were  found  to  be  reasonable, 
the  order  of  the  Commission  reducing  the  rate  might  be  held  to  be  un- 
reasonable, even  though  it  might  not  be  confiscatory.  The  Commission 
would  then  have  no  power  to  reduce  a  rate  which  was  already  in  con- 
formity with  the  law.  The  law  would  then  be  very  similar  to  that  of  Iowa, 
which  in  providing  for  the  enforcement  of  the  orders  of  the  Commission 
gives  opportunity  for  court  review  as  follows: 

"  If  the  Court  shall  find  that  such  rule,  regulation,  or  order  is  reasonable 
and  just,  and  in  refusing  compliance  therewith  said  company  is  failing 
and  omitting  the  performance  of  any  public  duty  or  obligation,  the  Court 
shall  issue  a  mandatory  or  perpetual  injunction,  compelling  obedience." 

It  must  be  admitted  that  such  a  construction  of  the  Hepburn  Bill 
would  be  rather  strained,  but  no  more  so  than  some  of  the  constructions 
which  have  been  placed  upon  the  original  Interstate  Commerce  Law,  and 
we  may  be  assured  that  the  courts  will  so  interpret  the  law,  as  to  leave 
their  powers  of  review  as  broad  as  possible. 


A  RATIONAL  PLAN  FOR  PUBLIC  CONTROL    193 

pointed  out,  essentially  judicial  in  its  character.  It  should 
therefore  be  left  in  the  hands  of  the  courts,  where  it  belongs. 
In  fact,  that  power  could  not  be  constitutionally  delegated 
to  any  other  body,  since  the  Constitution  vests  all  judicial 
power  in  the  courts. 

But  tlie  j)resent  process  before  the  courts  is  cumbersome. 
The  existing  P'ederal  courts  are  already  overburdened  with 
work,  and  to  add  to  their  duties  would  only  increase  the 
difficulties  and  prolong  the  delays.  Moreover  the  question 
of  the  reasonableness  of  a  given  rate  is  an  exceedingly 
difficult  one,  perhaps  the  most  difficult  of  all  judicial 
problems.  The  judges  of  the  ordinary  courts,  whose 
range  of  knowledge  must  extend  over  a  wide  variety  of 
subjects,  are  poorly  equipped  for  dealing  with  questions  of 
such  special  and  intricate  character.  AVe  j^ropose,  therefore, 
that  a  special  court  be  established  for  the  purpose  of  de- 
termining the  la^^'fulness  of  the  rates  charged  by  common 
carriers.  This  court  should  be  composed  of  five  or  seven 
members.  The  salary  and  dignity  of  the  judges  should 
be  raised,  if  possible,  to  a  point  equal  to  that  of  the  mem- 
bers of  the  Supreme  Court.  The  transportation  court 
should  have  final  jurisdiction  in  all  cases  exce])t  where 
its  order  is  alleged  to  violate  some  of  the  constitutional 
rights  of  the  carrier,  or  other  interested  parties,  in  regard 
to  which  point  the  Supreme  Court  should  have  a])pellate 
jurisdiction.  The  main  advantages  of  this  j)lan  over 
others  which  have  been  proposed  may  be  briefly  summed 
up  as  follows: 

1.  It  seeks  merely  to  control  the  carriers  with  respect 
to  their  unJa^vful  actions,  and  it  does  not  involve  an  at- 
tem])t  on  the  part  of  the  Government  to  decide  for  them 
questions  of  policy,  nor  does  it  take  away  from  them  the 
right  to  make  whatever  charges  they  see  fit,  within  the 
limits  of  the  law.  Thus,  if  a  rate  of  ninety  cents  were  the 
highest  rate  which  would  l)e  reasonable,  tliis  court  would 
have  no  authority  to  order  a  reduction  to  a  point  below 


194    FEDERAL  REGULATION  OF  RAILWAY  RATES 

ninety  cents.  On  the  other  hand  if  the  Commission  is 
given  discretionary  power  to  fix  rates,  it  might  order  a 
reduction  to  any  point  above  forty  cents,  providing  that 
were  the  point  where  the  fixing  of  the  rate  would  be  con- 
fiscatory. By  far  the  larger  proportion  of  the  rates  of  this 
country  vary  between  these  two  extremes.  The  rate  may 
be  sixty  or  seventy  cents,  according  to  what  policy  may 
dictate  in  each  individual  instance.  It  is  our  opinion  that 
the  railroads  themselves  can  better  decide  these  questions 
than  a  government  commission.  Under  the  plan  which 
we  propose,  the  vast  majority  of  the  rates  of  this  country 
would  be  unaffected,  while  if  the  Commission  is  given  the 
power  to  fix  rates,  every  dissatisfied  shipper  may  go  to  the 
Commission  with  a  complaint,  and  that  body  would  be 
under  the  legal  obligation  of  substituting  its  views  of  the 
policy  of  the  enforcement  of  a  given  rate  for  those  of  the 
railroad. 

2.  The  present  Commission  would  become  a  more 
efficient  body.  It  would  be  relieved  of  the  necessity  of 
wasting  a  considerable  portion  of  its  time  in  hearing  formal 
complaints,  and  in  writing  long  judicial  opinions,  which 
have  practically  no  legal  value.  It  would  thus  have  more 
time  and  energy  to  devote  to  the  performance  of  its  other 
functions.  It  could  hear  formal  complaints,  and  act  as  a 
board  of  arbitration  to  settle  disputes  between  the  carriers 
and  the  shippers  out  of  court  whenever  possible.  More- 
over, it  would  continue  to  act  as  a  public  executive  and 
administrative  body,  while  its  general  supervisory  powers 
over  the  railroads  would  remain  the  same.  It  could  then 
give  more  attention  to  detecting  violations  of  the  law,  and 
through  its  attorneys  it  could  act  as  a  public  prosecuting 
body,  in  all  cases  where  alleged  violations  have  occurred. 

3.  There  is  reason  to  expect  that  the  decisions  of  this 
new  court  of  transportation  would  be  more  in  accordance 
with  the  law  as  it  has  been  interpreted  by  the  courts,  and 
more-  equitable  to  the  carriers,  than  would  be  the  decisions 


A  RATIONAL  PLAN  FOR  PUBLIC  CONTROL  195 

of  the  present  Commission.  As  we  have  already  seen,  the 
members  of  the  existing  Commission  are  more  or  less 
prejudiced  in  favor  of  their  previous  interpretations  of  the 
law,  and  tliey  are  rendered  unfit  for  the  most  efficient 
judicial  service  by  their  inconsistent  functions. 

4.  The  plan  which  we  propose  is  more  expeditious. 
Informal  complaint  as  to  any  unreasonable  rate  could 
be  made  directly  to  the  Commission.  If  that  body  should 
be  unable  to  bring  about  an  amicable  settlement,  it  might 
within  very  short  notice,  if  the  facts  seemed  to  warrant  it, 
bring  a  formal  complaint  before  this  court  of  transporta- 
tion. This  court,  having  no  other  function  to  perform  than 
the  trial  of  this  particular  class  of  cases,  would  probably 
be  able  to  take  the  matter  up  immediately.  After  due 
hearing  to  all  parties  interested,  a  decision  could  be  ren- 
dered, and  the  order  of  the  court  could  go  into  effect  at 
once. 

5.  The  constitutional  and  practical  difficulties  of  putting 
the  order  into  effect  immediately  would  be  eliminated. 
The  problem  of  the  length  of  time  which  ought  to  be  al- 
lowed before  the  order  of  the  Commission  should  go  into 
effect,  and  how  justice  could  be  rendered  to  both  parties 
pending  the  final  decision  by  the  courts,  has  been  one  of 
the  principal  obstacles  in  the  way  of  the  proposed  legis- 
lation, the  intent  of  which  is  to  confer  rate-fixing  power 
upon  the  Commission.  If  the  original  Hepburn  Bill  be- 
comes a  law,  the  order  of  the  Commission  will  go  into 
effect  within  thirty  days.  If  this  order  should  subse- 
quently prove  to  be  a  violation  of  the  constitutional  rights 
of  the  carrier,  there  would  be  no  redress  for  the  loss  which 
it  may  have  sustained  in  the  interim  between  tlie  time 
when  the  order  of  the  Commission  went  into  effect  and  that 
of  the  final  disposal  of  the  case  by  the  courts. 

The  other  plan  which  has  been  suggested  is  that  an 
amount  representing  the  difference  between  the  rate 
ordered  by  the  Commission  and  the  former  rate  should 


196    FEDERAL  REGULATION   OF  RAILWAY  RATES 

be  held  in  escrow  and  paid  to  the  carrier  or  to  the  shipper 
respectively  as  the  final  decision  by  the  courts  favored 
the  one  or  the  other.  Such  a  plan  would  lead  to  great 
confusion  in  accounting,  and  it  is  probable  that  only  the 
larger  shippers  would  take  the  trouble  to  keep  the  cer- 
tificates, and  to  proceed  for  recovery  in  case  the  decision 
of  the  court  upheld  the  order  of  the  Commission.  At  any 
rate,  this  plan  has  but  little  merit,  for  the  shipper  is  gen- 
erally not  the  one  who  is  injured  by  the  enforcement  of  an 
unreasonable  rate,  but  the  consumer,  and  no  practicable 
plan  has  yet  been  suggested,  whereby  redress  may  in  such 
a  case  be  made  to  the  consumer,^ 

Under  the  plan  which  we  have  suggested,  on  the  other 
hand,  if  the  carrier  has  been  allowed  a  full  hearing  in  a 
duly  constituted  court,  the  order  of  the  court  could  go  into 
effect  at  once.  Even  if  the  Supreme  Court  should  subse- 
quently reverse  the  decision  upon  constitutional  grounds, 
it  could  not  be  affirmed  that  the  enforcement  of  the  order 
of  the  transportation  court  in  the  interim  had  been  without 
due  process  of  law.  Circumstances  in  which  hardships 
are  wrought  by  the  temporary  enforcement  of  wrong 
decisions  of  the  lower  courts,  are  a  commonplace  in  judicial 
procedure.  It  is  frequently  the  case  that  a  man  whom  the 
higher  courts  declare  to  be  innocent,  may  have  been  held 
for  several  years  pending  the  final  decision.   There  may  be 

^  It  has  been  urged  that  the  keen  competition  of  producers  and  shippers 
would  lead  to  lower  prices  by  way  of  discount  upon  the  future  action  of 
the  court.  This  might  be  true  in  some  cases,  and  it  is  not  altogether  im- 
probable that  instances  might  arise  where  the  consumer  would  receive 
the  entire  benefit  accruing  even  before  the  final  decision  by  the  courts. 
But  such  action  upon  the  part  of  the  shippers  and  producers  would  not 
be  in  accordance  with  sound  business  principles.  They  might  easily 
overestimate  the  probability  of  the  court  sustaining  the  order  of  the 
Commission,  and  if  they  should  make  prices  upon  the  assumption  that 
the  order  of  the  Commission  would  be  upheld,  and  they  should  sub- 
sequently be  disappointed  in  their  expectations,  many  of  them  might  be 
driven  into  bankruptcy.  This  would  be  especially  apt  to  be  true  of  jobbers 
in  such  articles  as  grain  and  coal,  who  usually  do  business  upon  a  small 
margin,  and  into  which  commodities  the  rate  enters  as  a  strong  factor 
in  determining  the  value. 


A  RATIONAL  PLAN  FOR  PUBLIC  CONTROL    197 

an  element  of  injustice  in  such  procedure,  but  with  our 
fallible  institutions,  it  is  probably  the  best  that  society  can 
offer.  That  which  is  important  for  the  preservation  of 
our  free  institutions,  is  tliat  the  order  which  imposes  the 
temporarj^  hardship  should  come  from  a  duly  constituted 
court,  and  with  due  process  of  law. 

A  further  consideration  along  the  same  line  is  that  there 
would  be  less  probability  that  the  order  of  this  court  would 
be  confiscatory  than  the  orders  of  a  commission  with  the 
discretionary  power  to  fix  rates.  As  we  have  already 
pointed  out,  this  court  would  not  have  the  right  to  exercise 
discretion  in  fixing  rates  at  any  point  above  that  where 
they  began  to  be  confiscatory,  but  only  to  order  the  carrier 
to  cease  and  desist  from  collecting  that  portion  of  a  rate 
which  serves  to  make  it  unreasonable. 

6.  The  plan  which  we  advocate  possesses  equal  ad- 
vantages with  the  provision  of  the  Hepburn  law,  which 
lays  upon  the  railroads,  and  not  upon  the  public,  the 
burden  of  appeal. 

7.  This  court  would  have  a  tremendous  advantage  over 
a  commission  in  deciding  questions  as  to  the  reasonable- 
ness of  the  charges  for  transportation,  in  that  it  would 
have  all  the  machinery  of  a  regular  court  at  its  disposal. 
It  could  enforce  the  giving  of  testimony,  and  punish  for 
contempt  by  summar}'  process.  Under  the  present  system 
a  witness  may  refuse  to  give  testimony  whenever  he  choses. 
The  law  requires  witnesses  to  answer  all  pertinent  ques- 
tions which  are  put  to  them  in  proceedings  before  the  Com- 
mission, but  there  are  no  means  by  which  the  Commission 
may  summarily  enforce  \he  giving  of  such  testimony.  Ac- 
cordingly whenever  a  witness  refuses  to  answer  a  question, 
it  is  necessary  for  the  Commission  to  begin  sej^arate  pro- 
ceedings in  the  courts  in  order  to  secure  a  writ  of  manda- 
mus compelling  the  witness  to  answer  the  question  which 
was  put  to  him.  This  process  necessarily  entails  long  de- 
lays.   Nor  would  it  be  possible  to  give  to  a  Commission 


198    FEDERAL  REGULATION  OF  RAILWAY  RATES 

which  is  a  quasi-administrative  body,  the  judicial  power  of 
enforcing  testimony  and  summarily  punishing  for  contempt. 
That  would  be  a  perversion  of  the  Constitution,  which  vests 
all  the  judicial  power  of  the  United  States  in  the  courts. 

8.  The  judges  of  this  court,  being  necessarily  appointed 
during  good  behavior,  and  being  independent  as  to  their 
salaries,  would  be  much  less  amenable  to  political  and 
sectional  influence.  It  is  much  less  likely  that  a  judge  who 
holds  ofiice  for  life  would  be  incUned  to  listen  to  the  argu- 
ments of  politicians  and  the  clamor  of  the  constituents  in 
particular  sections,  than  that  commissioners  who  must 
look  to  the  political  power  for  reappointment  at  the  end  of 
every  six  years,  should  be  amenable  to  the  same  influences. 

Thus  it  may  be  hoped  that  the  main  difficulty  which 
inevitably  attends  every  attempt  on  the  part  of  the  Gov- 
ernment to  exercise  any  supervisory  power  whatever  over 
rates  may  be  partially  removed. 

9.  The  superiority  of  this  plan  to  that  of  leaving  the 
matter  of  determining  the  reasonableness  of  transportation 
charges  to  the  ordinary  courts  of  law,  is  no  less  apparent. 
Surely  men  who  have  made  their  life  business  the  study 
of  the  special  problems  of  transportation,  would  be  better 
qualified  to  pass  judgment  upon  those  problems,  than  the 
judges  of  ordinary  courts,  who,  owing  to  the  nature  of  their 
duties,  can  give  but  a  small  portion  of  their  time  to  the 
study  of  these  intricate  problems. 

There  are  still  a  few  important  considerations  which 
have  a  direct  bearing  upon  the  plan  which  we  pro- 
pose. In  the  first  place,  it  is  apparent  that  Congress 
could  not  delegate  to  this  court,  or  to  any  other  court,  the 
discretionary  power  to  fix  rates,  such  as  is  given  to  the 
Commission  under  the  Hepburn  law.  We  have  already 
shown  that  rates  which  have  once  been  fixed  by  a  com- 
mission to  which  that  power  has  been  delegated,  have 
practically  the  force  of  law,  and  cannot  be  a  subject  of 


A  RATIONAL  PLAN  FOR  PUBLIC  CONTROL    199 

review  by  the  courts,  except  as  to  the  constitutionality  of 
the  order  enforcing  them.  But  it  is  certain  that  a  court 
would  not  have  the  right  to  exercise  this  quasi-legislative 
power,  even  if  it  were  delegated  to  it  by  Congress.  The 
function  of  a  court  is  to  determine  whether  an  existing 
law  has  been  violated,  to  punish  those  who  have  been  con- 
victed of  having  violated  the  law  in  the  past,  and  to  enjoin 
its  continued  violation  in  the  future.  The  court,  therefore, 
cannot  itself  make  the  law  which  it  is  constitutionally 
bound  to  enforce. 

The  very  point  for  w^hich  we  are  contending  was  de- 
cided in  the  case  of  State  vs.  Johnson.^  In  that  case  it 
was  held  that  the  law  of  Kansas  which  gave  the  power  of 
fixing  rates,  upon  the  complaint  of  any  shipper,  to  a  special 
court  known  as  the  Court  of  Visitation,  was  unconstitu- 
tional, in  that  it  was  an  attempt  to  confer  administrative 
and  legislative  powers  upon  the  judiciary.  That  the  Su- 
preme Court  would  adopt  the  same  view  in  case  Congress 
attempted  to  delegate  this  power  to  a  court,  appears 
from  the  following  dictum  in  the  case  of  Reagan  vs. 
Farmers'  Loan  and  Trust  Company -.^  "As  we  have 
already  seen,  it  is  not  the  function  of  the  courts  to  estab- 
lish a  schedule  of  rates.   .   .  ." 

The  Constitution  of  the  United  States,  which  vests  all 
the  legislative  power  in  Congress,  and  the  administra- 
tive power  in  the  President  and  his  subordinates,  gives  no 
authority  for  vesting  any  portion  of  tliese  powers  in  the 
courts. 

We  now  come  to  consider  those  objections  which 
have  hitherto  been  generally  regarded  as  fatal  to  any 
scheme  such  as  we  have  proposed.  It  has  been  contended 
that  such  a  court  would  not  have  the  power  to  declare  the 
extent  to  which  a  given  rate  is  unreasonalile.  It  is  alleged 
that  its  only  power  would  be  to  award  damages  for  the 
collection  of  excessive  rates  in  the  past,  and  to  enjoin  tlie 
'  61  Kansas,  803.  See  also  69  Minn.  353.        »  15-1  U.  S.  400. 


200    FEDERAL  REGULATION  OF  RAILWAY  RATES 

enforcement  of  a  given  unreasonable  rate  in  the  future. 
Since  the  discretionary  power  of  fixing  rates  cannot  be 
given  to  a  court,  it  is  alleged  that  the  transportation  court, 
in  declaring  the  extent  to  which  a  given  rate  is  unla\\'ful, 
would  be  thereby  setting  a  maximum  rate  for  the  future, 
and  thus  exceeding  its  powers. 

It  is  argued,  therefore,  that  the  plan  which  we  propose 
would  be  but  a  slight  improvement  over  the  present  plan. 
In  case  the  transportation  court  found  a  given  rate  of 
$1.00  unlawful,  it  is  alleged  that  the  railroad  might  comply 
by  a  nominal  reduction  to  99^  cents.  The  whole  case 
would  then  have  to  be  tried  de  novo.  This  process  of 
enjoining  and  nominal  compliance  might  go  on  indefinitely, 
and  it  would  take  many  decades  to  reduce  the  rate  to  a 
point  where  it  would  be  reasonable. 

This  contention,  though  supported  by  eminent  jurists, 
can  hardly  be  sustained  upon  sound  legal  principles.  It 
has  always  been  a  legitimate  function  of  a  court  of  equity 
to  forbid  continued  violations  of  the  law.  By  the  issue  of 
injunctions,  multiplicity  of  suits  may  be  avoided,  and  large 
numbers  of  individuals,  each  of  whom  suffers  but  slight 
damage  from  the  doing  of  the  unlawful  thing,  may  thus 
be  saved  the  necessity  of  bringing  separate  suits  for  every 
case  of  injury.  A  court  may,  therefore,  enjoin  the  per- 
formance not  only  of  a  part,  but  also  of  the  whole  of  an 
unlawful  thing.  In  fact,  unless  there  were  some  extenuating 
circumstances,  the  court  would  not  be  performing  its  con- 
stitutional duty,  if  it  were  to  forbid  the  doing  of  a  certain 
part,  but  not  the  whole  of  an  unlawful  practice.  For  in- 
stance, if  my  neighbor  keeps  a  large  pile  of  unsightly  and 
unsavory  rubbish  upon  his  property  next  to  my  dwelling, 
the  court  may  not  only  enjoin  the  keeping  of  the  pile  of 
rubbish  of  this  particular  size  and  shape,  but  it  may  order 
the  removal  of  the  whole  pile,  or  such  part  of  it  as  may  be 
deemed  unsightly  or  a  menace  to  health. 

Again,  if  some  person  attempted  to  erect  a  forty-story 


A  RATIONAL  PLAN  FOR  PUBLIC  CONTROL    201 

sky-scraper,  and  the  evidence  showed  that  such  a  building 
would  he  a  menace  to  life  and  property  in  the  immediate 
neighborhood,  the  court  might  issue  an  injunction  pre- 
venting its  erection.  Surely,  it  cannot  be  said  that  the  order 
of  the  court  would  be  limited  to  the  two  alternatives  either 
of  enjoining  the  erection  of  any  building  whatever,  or  the 
enjoining  of  the  erection  of  a  building  of  the  character 
proposed  which  would  be  forty  stories  in  height.  In  the 
one  case,  the  constitutional  rights  of  the  owner  of  the 
property  would  be  violated.  In  the  other  case,  the  owner 
might  comply  with  the  order  by  the  erection  of  a  building 
of  thirty-nine  and  a  half  stories,  by  which  the  service  of 
the  court  would  be  rendered  practically  nugatory.  If  the 
evidence  showed  that  any  building  of  the  character  pro- 
posed which  should  be  higher  than  thirty  stories  would 
be  a  menace  to  life  and  property  in  the  immediate  en- 
vironment, the  court  might  enjoin  the  erection  of  any 
building  of  that  character  higher  than  thirty  stories.  In 
doing  this,  the  court  would  not  be  making  the  law  for 
the  future.  The  old  proverb  that  one  should  so  use  his 
own  property  as  not  to  injure  or  jeopardize  the  lives  or 
property  of  others  has  been  established  in  law  as  long 
as  legal  institutions  are  known  to  have  existed.  The  court 
would  merely  be  determining  the  extent  of  the  unlawful- 
ness of  the  proposed  action  of  the  owner  of  the  property, 
which  is  exactly  the  power  which  we  contend  tliat  the 
court  would  have  in  determining  the  extent  to  which 
a  rate  complained  of  is  unla^^'ful. 

The  building  case  ^  just  cited  is  exactly  in  point.  Ob- 
viously, the  court  could  not  be  given  the  discretionary 
power  of  issuing  quasi-legislative  orders,  determining  the 
legal  height  of  buildings  or  the  character  of  excavations 
which  might  be  made  l)v  the  owners  of  property,  but  in 
any  given  case  which  is  brought  before  it,  it  may  not  only 

*  We  liavc  assumetJ.  in  this  case,  tliat  there  are  no  definite  building 
laws  limiting  the  height  of  buildings,  etc. 


202    FEDERAL  REGULATION  OF  RAILWAY  RATES 

determine  the  question  whether  the  action  of  the  defendant 
is  in  violation  of  the  law,  but  also  it  may  declare  to  what 
extent,  and  in  what  respects,  it  is  in  violation  of  the  law, 
and  it  may  order  that  no  part  of  the  unlawful  thing  shall 
be  performed. 

Suppose  a  railway  were  charging  a  rate  of  $1.00  and 
90  cents  were  the  maximum  rate  which  would  be  rea- 
sonable. The  charge  of  $1.00  would  then  be  unlawful, 
but  not  the  whole  of  that  charge.  It  is  only  that  portion 
of  the  charge  which  is  in  excess  of  ninety  cents  that  may 
be  declared  unlawful.  But  the  whole  of  that  excess  charge 
of  ten  cents  is  unlawful.  The  court  may  order  the  carrier 
to  cease  and  desist  from  doing  an  unlawful  thing.  Further- 
more, it  may  order  the  railroad  to  cease  and  desist  from 
doing  the  whole  of  the  unlawful  thing,  and  not  simply  an 
infinitesimal  part  of  it,  as  some  would  have  us  believe. 
It  may,  therefore,  order  that  the  rate  should  not  exceed 
ninety  cents,  which  is  the  maximum  rate  which  the  law 
allows.  In  doing  this  the  court  would  exercise  no  legislative 
or  discretionary  power  whatever.  Its  function  would  be 
purely  judicial.  Its  business  would  be  to  decide  in  what 
respect  and  to  what  extent  the  action  of  the  carrier  is  a 
violation  of  the  law,  and  to  enjoin  the  doing  of  the  unlaw- 
ful thing.  To  be  sure,  this  is  a  difiicult  problem,  and  there 
seems  to  be  no  exact  line  of  demarcation  between  what  is  a 
reasonable  and  what  is  an  unreasonable  rate,  but  never- 
theless, the  question  is  purely  judicial  in  character. 

The  simplest  definition  of  an  unreasonable  rate  is  a  rate 
which  is  so  high,  and  so  greatly  out  of  proportion  to  the 
general  practice  of  railroads,  that  it  cannot  be  justified 
upon  reasonable  grounds.  Of  course  it  is  difficult  to  find 
the  exact  point  at  which  a  rate  begins  to  become  unrea- 
sonable, but  a  similar  difficulty  is  frequently  met  with  in 
other  forms  of  judicial  procedure.  In  the  building  case 
above  cited,  it  might  be  somewhat  difficult  to  show  that  a 
building  of  twenty-nine  stories  would  be  perfectly  safe, 


A  RATIONAL  PLAN  FOR  PUBLIC  CONTROL    203 

and  tliat  a  building  of  thirty-one  stories  would  he  extremely 
dangerous.  Owing  to  the  limited  extent  of  human  know- 
ledge, and  the  necessarily  limited  and  inaccurate  data,  it 
would  be  absolutely  impossible  to  determine  this  point 
with  precision.  The  best  which  a  court  could  do,  in  such 
a  case,  would  be  to  sum  up  the  evidence  which  was  pre- 
sented to  it,  and  if  the  indications  were  that  a  building  of 
thirty-one  stories  would  be  unsafe,  it  would  issue  an  order 
enjoining  the  erection  of  a  building  of  more  than  thirty 
stories,  the  assumption  being  that  a  building  of  that  height 
w^ould  be  safe,  while  a  similar  building  thirty-one  stories  in 
height  would  be  dangerous.  These  findings  of  the  court, 
for  all  intents  and  purposes,  must  be  held  to  be  correct. 

In  almost  every  case  which  comes  before  the  courts 
involving  money  damages,  such  damages  are  awarded  for 
things  which  are  entirely  incommensurate  with  money. 
For  instance,  how  is  it  possible  to  determine  with  mathe- 
matical precision  the  money  value  of  an  arm  or  a  leg,  of 
wounded  feelings,  or  of  an  injury  to  business  rej)utation  ? 
Such  awards  can  only  be  regarded  as  elements  of  allevia- 
tion for  the  injury  inflicted,  and  yet  it  must  be  assumed 
that  the  court  in  rendering  those  awards,  has  performed 
substantial  justice.  So,  also,  in  the  matter  of  reasonable- 
ness of  railroad  rates.  The  function  of  this  court  would 
be  to  determine,  as  nearly  as  possible,  witli  tlie  limited 
resources  available,  the  facts  as  to  the  reasonableness  of 
rates  complained  of,  and  to  issue  its  order  in  conformity 
with  those  findings  of  fact.  Its  findings  must  then  be  as- 
sumed to  have  been  accurate,  and  should  have  the  same 
legal  force  as  if  it  were  known  that  they  were  absolutely 
precise. 

It  is  generally  admitted  by  all  jurists  that  a  court 
may  declare  to  wkat  extent  a  rate  collected  in  the  past  is 
unreasonable,  and  that  it  may  award  damages  for  what- 
ever charge  has  been  made  in  excess  of  tliat  amount.  But 
it  is  contended  that  a  court  may  not  declare  the  extent 


204    FEDERAL  REGULATION  OF  RAILWAY  RATES 

to  which  the  rate  of  the  carrier  is  unreasonable  when 
applied  to  the  future.  The  argument  is  that  such  an  order 
of  the  court  would  have  the  legislative  force  of  establishing 
a  maximum  rate  for  the  future,  since  conditions  may  at 
any  time  so  change  as  to  render  the  former  unreasonable 
rate  of  the  carrier  reasonable  and  therefore  lawful.  The 
distinction,  however,  is  not  a  good  one.  No  injunction 
which  a  court  may  issue  with  regard  to  other  matters 
would  have  any  force  whatever  unless  it  were  to  apply  to 
the  future.  But  there  are  few  circumstances  in  which 
conditions  might  not  so  change  as  to  render  the  former 
unlawful  act  lawful.  But  this  has  never  been  held  to  bar 
the  court  from  issuing  the  injunction. 

On  the  contrary,  the  courts  have  frequently  held  that 
the  fact  that  conditions  may  change  is  no  bar  to  the  issue 
of  an  order  by  the  court  forbidding  the  continued  per- 
formance of  an  act  which  was  unlawful  in  the  past,  and 
which,  without  a  radical  change  of  conditions,  would  con- 
tinue to  be  unlawful  in  the  future.  The  very  point  for  which 
we  are  contending  was  decided  in  the  case  of  Janvrin  vs. 
Revere  Water  Company.^  A  statute  of  the  legislature  of 
Massachusetts  required  water  companies  within  a  given 
district  to  furnish  their  patrons  with  water  at  reasonable 
rates,  and  provided  that  any  person  who  believed  himself 
charged  an  unreasonable  sum  might  apply  to  the  Supreme 
Court  of  the  State,  which  court,  after  allowing  due  hear- 
ing, might  declare  what  should  be  the  maximum  legal  rate, 
which,  in  accordance  with  the  statute,  the  water  company 
might  charge  for  the  future.  In  upholding  the  constitu- 
tionality of  this  statute,  the  court  held  as  follows: 

The  statute  calls  upon  us  to  fix  the  extent  of  the  existing 
rights.  With  regard  to  such  rights,  judicial  determinations  are 
not  confined  to  the  past.  If  it  may  legitimately  be  left  to  the 
court  to  decide  whether  a  bill  for  water  furnished  was  reasonable, 
and  if  not,  to  cut  it  down  to  a  reasonable  sum,  it  equally  may  be 
1  174  Mass.  174. 


I 


A  RATIONAL  PLAN  FOR  PUBLIC  CONTROL    205 

left  to  the  court  to  enjoin  the  company  from  charging  more  than 
a  reasonable  sum  in  the  immediate  future.  .  .  , 

But  suppose  the  party  aggrieved  should  obtain  an  injunction, 
obviously  the  decree  would  be  so  drawn  as  to  bind  the  defend- 
ant for  a  reasonable  time,  or  if  it  were  drawn  in  the  common 
form,  subject  to  review  on  a  change  of  circumstances,  the  court 
would  not  be  likely  to  grant  a  bill  of  review  until  a  reasonable 
time  had  elapsed;  and  if  the  legislature  should  say  that  in  these 
cases  five  years  was  a  reasonable  time,  we  could  not  say  that  it 
was  wrong. 

In  the  case  of  the  United  States  ex  rel.,  King^\'ood  Coal 
Co.  vs.  West  Virginia  and  Northern,'  a  PVdcral  court 
adopted  a  similar  point  of  view.  In  that  case,  the  court 
went  so  far  as  to  apportion  the  cars  of  the  carrier  among 
the  various  shi})j)ers,  in  accordance  with  what  would  have 
been  proper  in  the  past.  This  order  was  made  to  apply  to 
the  future,  though  it  was  evident  that  conditions  might 
change  at  any  time,  so  that  the  apportionment  would  be 
no  longer  just. 

In  the  Cattle  Raisers'  Case,^  the  court  clearly  assumed 
the  right  to  enforce  the  order  of  the  Commission,  if  it  had 
been  justified  by  the  facts  upon  which  it  was  predicated. 
If,  therefore,  it  had  been  found  that  any  charge  in  excess 
of  $1.00  was  unla^vful,  as  the  Commission  had  declared, 
the  court  would  have  issued  an  injunction  forbidding  the 
collection  of  a  terminal  charge  in  excess  of  that  sum. 

In  the  case  of  the  Missouri  Pacific  vs.  The  United  States,^ 
the  Supreme  Court  held  that  since  the  passage  of  the  El- 
kins  law,  the  court  might  lawfully  issue  an  injunction  for- 
bidding the  carrier  from  unjustly  discriminating  against 
the  city  of  Wichita  in  favor  of  Omaha.  It  would  be  rather 
an  anomalous  interpretation  of  the  law  which  would 
enable  a  court  to  forbid  a  discrimination  altogether,  and 

>  loi  Fed.  Ren.  'iS'i.  134  Fed  Rep.  196.  This  decision  was  sustained 
upon  appeal  to  tlie  Circuit  Court.  See  also  Schofield  vt.  L.  S.  &  M.  S. 
Ry..  43  Ohio  State  Rep.  671. 

'  186  U.  S.  3^0. 

»  186  U.  S.  SiO. 


206    FEDERAL  REGULATION  OF  RAILWAY  RATES 

at  the  same  time  prevent  it  from  declaring  to  what  extent  a 
given  discrimination  is  unlawful. 

Suppose  the  rate  to  point  A  were  eighty  cents,  while  the 
rates  to  points  B  and  C  were  both  $1.00.  Assume  also  that 
no  discrimination  between  points  A  and  B  could  be  jus- 
tified upon  reasonable  grounds,  while  only  a  discrimination 
of  ten  cents  could  be  justified  between  points  A  and  C. 
According  to  the  decision  which  has  just  been  cited,  the 
court  would  have  the  authority  to  issue  an  injunction 
forbidding  the  whole  of  the  discrimination  between  points 
A  and  B,  but  some  would  have  us  believe  that  point  C  is 
without  equal  opportunity  for  obtaining  relief.  It  is  evident 
that  the  elements  of  the  problem  are  the  same  in  each  case. 
It  is  necessary  that  the  injunction  of  the  court  should 
apply  to  the  future  in  both  cases.  Conditions  at  B  are  as 
liable  to  change  as  those  at  C.  There  is  the  same  difficulty 
in  determining  with  mathematical  accuracy,  that  there 
ought  to  be  no  discrimination  whatever  against  B,  as  there 
is  in  determining  that  there  ought  not  to  be  any  discrimi- 
nation greater  than  ten  cents  against  C.  How  could  a 
court  rule  otherwise,  in  case  the  rate  to  C  were  in  question, 
than  to  order  the  carrier  to  make  no  more  than  a  reason- 
able discrimination,  which,  according  to  the  evidence  in 
the  case,  would  not  exceed  ten  cents  ? 

Obviously,  the  court  would  not  have  the  power  to  forbid 
the  whole  of  the  discrimination  against  C,  as  it  would  have 
in  the  case  of  B,  but  it  would  have  the  power  to  forbid  the 
whole  of  the  unlawful  part  of  the  discrimination,  which 
in  the  assumed  case  is  ten  cents. 

In  Smyth  vs.  Ames,^  the  Supreme  Court  held  that  the 
rates  fixed  by  the  legislature  of  the  State  of  Nebraska 
were  confiscatory.  That  decision  was  necessarily  based 
upon  past  transactions.  Yet  the  court  held  that  it  might 
lawfully  issue  an  injunction  against  the  enforcement  of 
the  rates  made  by  the  legislature  in  the  future.  This 
>  169  U.  S.  466.   See  also  Social  Circle  Case,  162  U.  S.  184. 


A  RATIONAL  PLAN  FOR  PUBLIC  CONTROL    207 

ruling  was  made  notwithstanding  the  fact  that  conditions 
might  at  any  time  so  change  as  to  render  the  rates  fixed 
by  the  legislature  no  longer  confiscatory.  The  court, 
therefore,  provided  for  an  aj)plication  for  a  modification 
of  its  decree  in  case  such  circumstances  should  arise. 

In  the  face  of  this  long  line  of  judicial  opinions,  it  is 
evident  that  the  right  of  a  specially  constituted  transpor- 
tation court,  to  enjoin  the  enforcement  of  the  whole  of  the 
unreasonable,  or  the  unjustly  discriminatory  portion  of  a 
rate  which  is  in  dispute,  is  established  beyond  all  reason- 
able doubt.  But  even  if  the  courts  should  hold  otherwise, 
it  would  not  be  wholly  fatal  to  the  plan  which  is  here  pro- 
posed. The  mere  power  of  enjoining  the  enforcement  of 
a  given  rate,and  of  awarding  damages  for  excessive  charges 
in  the  past,  would  do  much  to  compel  the  railroads  to  obey 
the  law.  If  the  railroads  made  only  nominal  reductions, 
it  would  be  possible  to  impose  additional  j)enalties  for  the 
collection  of  an  unreasonable  rate  which  constitutes  only 
a  nominal  reduction  from  a  rate  already  declared  by  the 
court  to  be  unla\\-ful.  The  fact  that,  even  under  our  present 
inadequate  system,  railroads,  in  over  ninety-five  per  cent 
of  the  cases  where  they  have  not  entirely  refused  to  obey 
the  order  of  the  Commission,  have  made  substantial 
compliance  with  its  order,  goes  to  show  that  when  a  given 
rate  has  been  declared  unlawful,  the  roads  are  not  prone 
to  make  nominal  reductions,  as  is  sometimes  alleged.  They 
are  well  aware  that  if  they  should  act  in  this  manner  they 
would  be  but  inviting  more  drastic  legislation  on  the  part 
of  Congress. 

The  question  naturally  arises,  whether  the  railroads, 
after  a  given  rate  has  been  declared  unlawful  by  the  pro- 
posed court,  might,  upon  a  change  of  conditions,  violate 
the  provisions  of  the  injunction  at  their  own  peril,  and 
upon  their  own  initiative,  or  whether  they  would  be  com- 
pelled to  apply  to  this  court  for  formal  relief  from  its  op- 
eration.   Upon  this  point  authorities  differ.    Some  courts 


208    FEDERAL  REGULATION  OF  RAILWAY  RATES 

have  allowed  a  party  who  is  proceeded  against  for  con- 
tempt, to  produce  evidence  to  show  why  the  provisions 
of  the  injunction  should  no  longer  apply.  The  weight  of 
authority,  however,  is  to  the  effect  that  no  disobedience 
can  be  allowed,  unless  formal  relief  from  the  operation 
of  the  injunction  has  been  granted  by  the  court. 

It  seems,  however,  that  it  would  be  advisable  for  Con- 
gress to  authorize  both  methods  of  procedure.  This  would 
leave  a  much  larger  scope  to  the  initiative  of  the  railroad 
in  promptly  adjusting  its  rates  in  order  to  meet  new  con- 
ditions, and  it  is  certain  that  penalties  for  contempt  would 
not  be  severe,  where  the  railroad  could  show  that  it  had 
reasonable  grounds  to  believe  that  it  was  justified  in  a  de- 
parture from  the  observance  of  the  order  of  the  court.  A 
still  better  plan,  and  one  which  would  tend  greatly  to  ob- 
viate the  danger  of  a  rigid  system  of  court-made  rates, 
would  be  limitation  of  the  time  during  which  an  order 
of  the  court  should  be  operative,  say  to  not  more  than 
two  years. 

One  other  important  objection  has,  however,  been  raised 
to  the  plan  which  we  propose.  Certain  jurists  deprecate 
the  institution  of  a  special  court  to  try  a  special  class  of 
cases,  and  they  fear  that  such  a  court  might  get  out  of 
harmony  with  the  rest  of  the  judiciary.  But  this  objection 
is  one  of  form,  rather  than  of  substance.  The  questions 
arising  from  the  problem  of  railway  rates  are  of  a  peculiar 
and  special  character.  In  the  very  nature  of  things,  they 
require  special  treatment.  The  fear  that  the  proposed 
transportation  court  and  the  rest  of  the  Federal  courts 
might  get  out  of  harmony,  is  entirely  groundless,  for  they 
would  deal  w^ith  different  classes  of  material.  Conflict  of 
opinion  and  jurisdiction  would  thus  be  impossible.  With 
regard  to  the  question  as  to  what  constitutes  a  taking  of 
property  without  due  process  of  law,  it  is  impossible  that 
the  proposed  transportation  court  and  the  Supreme  Court 
should  be  at  variance,  for  upon  that  point  its  decisions 


A  RATIONAL  PLAN   FOR  PUBLIC  CONTROL    209 

would  be  subject  to  review  by  the  Supreme  Court.  It  would 
be  compelled  to  yield  to  the  ruling  of  the  higher  court  in 
just  the  same  way  as  any  other  inferior  court.  Nor  could 
this  court  and  the  other  courts  be  at  variance  as  to  what 
constitutes  a  reasonable  rate,  for  upon  this  point  the  trans- 
portation court  would  have  original  and  final  jurisdiction, 
and  the  other  courts  would  have  nothing  to  say. 

In  fact,  when  we  take  into  consideration  the  peculiar 
nature  of  the  problem  of  railway  rates,  the  fact  that  the 
property  interests  involved  in  the  determination  of  such 
questions  would  probably  be  greater  than  that  of  all  the 
other  cases  combined  which  come  before  the  Federal 
courts,  and  the  overcrowded  dockets  of  our  courts,  as  they 
are  now  constituted,  a  special  court  for  the  purposes  which 
we  have  set  forth  seems  almost  requisite. 

In  the  plan  which  has  been  proposed,  we  have  only 
attempted  to  state  the  broad  principles  upon  which  it  is 
believed  any  system  for  the  public  control  of  rates  should 
be  founded.  The  arrangements  of  the  details  of  the  plan 
may  properly  be  left  to  Congress,  should  a  bill  embodying 
these  principles  ever  come  before  that  body.  Upon  the 
whole,  however,  our  conclusion  is  that  the  least  regulation 
which  is  consistent  with  securing  equal  rights  and  treat- 
ment to  the  small  shipper  as  against  the  larger  ones,  and 
with  the  prevention  of  unjust  discrimination  and  extortion, 
is  the  best  regulation. 


APPENDIX 


APPENDIX 

THE   ACT   TO   REGULATE   COMMERCE 

AN  ACT  to  regulate  commerce,  approved  Feb.  4,  1887,  and  in 
effect  April  5,  1887  {ii  Statutes  at  Large,  379;  1  Supp.  to  Rev. 
Stat.  U.  S.  529),  as  amended  by  an  act  approved  March  2,  1889 
(25  Statutes  at  Large,  855;  1  Supp.  to  Rev.  Stat.  U.  S.  684), 
and  by  an  act  approved  Feb.  10,  1891  (26  Statutes  at  Large, 
743;  i  Supp.  to  Rev.  Stat.  U.  S.  891),  and  by  an  act  approved 
Feb.  8,  1895  (28  Statutes  at  Large,  643;  2  Supp.  to  Rev.  Stat. 
U.  S.  369),  and  by  an  act  approved  June  29, 1906  (U.  S.  Session 
Laws,  59th  Congress,  1st  Session,  chap.  3591,  p.  584),  and  by 
a  joint  resolution  approved  June  30,  1906  (U.  S.  Session 
Laws,  59th  Congress,  1st  Session,  Pub.  Res.  No.  47,  p.  838). 
Be  it  enacted  by  the  Senate  and  House  of  Representatives  of 
the  United  States  of  America  in  Congress  assembled. 

Sec.  1  (As  amended  June  29,  1906).  That  the  provisions  of 
this  Act  shall  apply  to  any  corporation  or  any  person  or  persons 
engaged  in  the  transportation  of  oil  or  other  commodity,  except 
water  and  except  natural  or  artificial  gas,  by  means  of  pipe  lines, 
or  partly  by  pipe  lines  and  partly  by  railroad,  or  partly  by  pipe 
lines  and  partly  by  water,  who  shall  be  considered  and  held  to 
be  common  carriers  within  the  meaning  and  purpose  of  this  act, 
and  to  any  common  carrier  or  carriers  engaged  in  the  transporta- 
tion of  passengers  or  property  wholly  by  railroad  (or  partly  by 
railroad  and  partly  by  water  when  both  are  used  under  a  common 
control,  management,  or  arrangement  for  a  continuous  carriage 
or  shipment),  from  one  State  or  Territory  of  the  United  States, 
or  the  District  of  Columbia,  to  any  other  State  or  Territory  of 
the  United  States,  or  the  District  of  Columbia,  or  from  one  place 
in  a  Territory  to  another  place  in  the  same  Territory,  or  from 
any  place  in  the  United  States  to  an  adjacent  foreign  country, 
or  from  any  place  in  the  United  States  through  a  foreign  country 
to  any  other  place  in  the  United  States,  and  also  to  the  trans- 
portation in  like  manner  of  property  shipped  from  any  place 
in  the  United  States  to  a  foreign  country  and  carried  from  such 
place  to  a  port  of  transshipment,  or  shipped  from  a  foreign  coun- 
try to  any  place  in  the  United  States  and  carried  to  such  place 


214  APPENDIX 

from  a  port  of  entry  either  in  the  United  States  or  an  adjacent 
foreign  country:  Provided,  however.  That  the  provisions  of  this 
Act  shall  not  apply  to  the  transportation  of  passengers  or  pro- 
perty, or  to  the  receiving,  delivering,  storage,  or  handling  of 
property  wholly  within  one  State  and  not  shipped  to  or  from  a 
foreign  country  from  or  to  any  State  or  Territory  as  aforesaid. 

The  term  "  common  carrier  "  as  used  in  this  Act  shall  include 
express  companies  and  sleeping  car  companies.  The  term  "rail- 
road," as  used  in  this  Act,  shall  include  all  bridges  and  ferries 
used  or  operated  in  connection  with  any  railroad,  and  also  all 
the  road  in  use  by  any  corporation  operating  a  railroad,  whether 
owned  or  operated  under  a  contract,  agreement,  or  lease,  and 
shall  also  include  all  switches,  spurs,  tracks,  and  terminal 
facilities  of  every  kind  used  or  necessary  in  the  transportation 
of  the  persons  or  property  designated  herein,  and  also  all  freight 
depots,  yards,  and  grounds  used  or  necessary  in  the  transporta- 
tion or  delivery  of  any  of  said  property;  and  the  term  "transpor- 
tation" shall  include  cars  and  other  vehicles  and  all  instrumen- 
talities and  facilities  of  shipment  or  carriage,  irrespective  of 
ownership  or  of  any  contract,  express  or  implied,  for  the  use 
thereof  and  all  services  in  connection  with  the  receipt,  delivery, 
elevation,  and  transfer  in  transit,  ventilation,  refrigeration  or  ic- 
ing, storage,  and  handling  of  property  transported ;  and  it  shall 
be  the  duty  of  every  carrier  subject  to  the  provisions  of  this 
Act  to  provide  and  furnish  such  transportation  upon  reasonable 
request  therefor,  and  to  establish  through  routes  and  just  and 
reasonable  rates  applicable  thereto. 

All  charges  made  for  any  service  rendered  or  to  be  rendered 
in  the  transportation  of  passengers  or  property  as  aforesaid,  or 
in  connection  therewith,  shall  be  just  and  reasonable;  and  every 
unjust  and  unreasonable  charge  for  such  service  or  any  part 
thereof  is  prohibited  and  declared  to  be  unlawful. 

No  common  carrier  subject  to  the  provisions  of  this  Act  shall, 
after  January  first,  nineteen  hundred  and  seven,  directly  or 
indirectly,  issue  or  give  any  interstate  free  ticket,  free  pass,  or 
free  transportation  for  passengers,  except  to  its  employees  and 
their  families,  its  officers,  agents,  surgeons,  physicians,  and 
attorneys  at  law;  to  ministers  of  religion,  traveling  secretaries  of 
railroad  Young  Men's  Christian  Associations,  inmates  of  hospi- 
tals and  charitable  and  eleemosynary  institutions,  and  persons 
exclusively  engaged  in  charitable  and  eleemosynary  work;    to 


APPENDIX  215 

indigent,  destitute  and  homeless  persons,  and  to  such  persons 
when  transported  by  charitable  societies  or  hospitals,  and  the 
necessary  agents  employed  in  such  transportation;  to  inmates 
of  the  National  Homes  or  State  Homes  for  Disabled  Volunteer 
Soldiers,  and  of  Soldiers'  and  Sailors'  Homes,  including  those 
about  to  enter  and  those  returning  home  after  discharge,  and 
boards  of  managers  of  such  Homes;  to  necessary  care  takers  of 
live  stock,  poultry,  and  fruit;  to  employees  on  sleeping  cars,  ex- 
press cars,  and  to  linemen  of  telegraph  and  telephone  companies; 
to  Railway  Mail  Service  em[)loyees,  post-oflBce  inspectors,  cus- 
toms inspectors  and  immigration  inspectors;  to  newsboys  on 
trains,  baggage  agents,  witnesses  attending  any  legal  investiga- 
tion in  which  the  common  carrier  is  interested,  persons  injured 
in  WTecks  and  physicians  and  nurses  attending  such  persons: 
Provided,  That  this  provision  shall  not  be  construed  to  prohibit 
the  interchange  of  passes  for  the  officers,  agents,  and  employees 
of  common  carriers,  and  their  families;  nor  to  prohibit  any 
common  carrier  from  carrying  passengers  free  with  the  object 
of  providing  relief  in  cases  of  general  epidemic,  pestilence,  or 
other  calamitous  \-isitation.  Any  common  carrier  \-iolating  this 
provision  shall  be  deemed  guilty  of  a  misdemeanor  and  for  each 
offense,  on  con\iction,  shall  pay  to  the  United  States  a  penalty 
of  not  less  than  one  hundred  dollars  nor  more  than  two  thousand 
dollars,  and  any  person,  other  than  the  persons  excepted  in  this 
pro\-ision,  who  uses  any  such  interstate  free  ticket,  free  pass,  or 
free  transportation,  shall  be  subject  to  a  like  penalty.  Jurisdic- 
tion of  offenses  under  this  pro\-ision  shall  be  the  same  as  that 
provided  for  offenses  in  an  Act  entitled  "An  Act  to  further  regu- 
late commerce  with  foreign  nations  and  among  the  States," 
approved  February  nineteenth,  nineteen  hundred  and  three,  and 
any  amendment  thereof. 

From  and  after  May  first,  nineteen  hundred  and  eight,  it  shall 
be  unlawful  for  any  railroad  company  to  transport  from  any 
State,  Territory,  or  the  District  of  Columbia,  to  any  other  State, 
Terrifor}',  or  the  District  of  Columbia,  or  to  any  foreign  country, 
any  article  or  commo<iity,  other  than  timber  and  the  manufac- 
tured products  thereof,  manufactured,  mined,  or  produced  by  it, 
or  under  its  authority,  or  which  it  may  own  in  whole,  or  in  part, 
or  in  which  it  may  have  any  interest  direct  or  indirect  except  such 
articles  or  commodities  as  may  be  necessary  and  intended  for  its 
use  in  the  conduct  of  its  business  as  a  common  carrier. 


216  APPENDIX 

Any  common  carrier  subject  to  the  provisions  of  this  Act, 
upon  application  of  any  lateral,  branch  line  of  railroad,  or  of 
any  shipper  tendering  interstate  traffic  for  transportation,  shall 
construct,  maintain,  and  operate  upon  reasonable  terms  a  switch 
connection  with  any  such  lateral,  branch  line  of  railroad,  or  pri- 
vate side  track  which  may  be  constructed  to  connect  with  its 
railroad,  where  such  connection  is  reasonably  practicable  and 
can  be  put  in  with  safety  and  will  furnish  sufficient  business  to 
justify  the  construction  and  maintenance  of  the  same;  and  shall 
furnish  cars  for  the  movement  of  such  traffic  to  the  best  of  its 
ability  without  discrimination  in  favor  of  or  against  any  such 
shipper.  If  any  common  carrier  shall  fail  to  install  and  operate 
any  such  switch  or  connection  as  aforesaid,  on  application  there- 
for in  writing  by  any  shipper,  such  shipper  may  make  complaint 
to  the  Commission,  as  provided  in  section  thirteen  of  this  Act, 
and  the  Commission  shall  hear  and  investigate  the  same  and 
shall  determine  as  to  the  safety  and  practicability  thereof  and 
justification  and  reasonable  compensation  therefor  and  the 
Commission  may  make  an  order,  as  provided  in  section  fifteen 
of  this  Act,  directing  the  common  carrier  to  comply  with  the 
provisions  of  this  section  in  accordance  with  such  order,  and  such 
order  shall  be  enforced  as  hereinafter  provided  for  the  enforce- 
ment of  all  other  orders  by  the  Commission,  other  than  orders 
for  the  payment  of  money. 

Sec.  2.  That  if  any  common  carrier  subject  to  the  provisions 
of  this  Act  shall,  directly  or  indirectly,  by  any  special  rate,  rebate, 
drawback,  or  other  device,  charge,  demand,  collect,  or  receive 
from  any  person  or  persons  a  greater  or  less  compensation  for 
any  service  rendered,  or  to  be  rendered,  in  the  transportation  of 
passengers  or  property,  subject  to  the  provisions  of  this  Act, 
than  it  charges,  demands,  collects,  or  receives  from  any  other 
person  or  persons  for  doing  for  him  or  them  a  like  and  contem- 
poraneous service  in  the  transportation  of  a  like  kind  of  traffic 
under  substantially  similar  circumstances  and  conditions,  such 
common  carrier  shall  be  deemed  guilty  of  unjust  discrimination, 
which  is  hereby  prohibited  and  declared  to  be  unlawful. 

Sec.  3.  That  it  shall  be  unlawful  for  any  common  carrier 
subject  to  the  provisions  of  this  Act  to  make  or  give  any  undue 
or  unreasonable  preference  or  advantage  to  any  particular  person, 
company,  firm,  corporation,  or  locality,  or  any  particular  descrip- 
tion of  traffic,  in  any  respect  whatsoever,  or  to  subject  any  par- 


APPENDIX  217 

ticular  person,  company,  firm,  corporation,  or  locality,  or  any 
particular  descri}>tion  of  trafiic,  to  any  undue  or  unreasonable 
prejudice  or  disadvantage  in  any  respect  whatsoever. 

Every  common  carrier  subject  to  the  provisions  of  this  Act 
shall,  according  to  their  respective  powers,  afford  all  reasonable, 
proper,  and  equal  facilities  for  the  interchange  of  traffic  between 
their  respective  Unes,  and  for  the  receiving,  forwarding,  and 
delivering  of  passengers  and  property  to  and  from  their  several 
lines  and  those  connecting  therewith,  and  shall  not  discriminate 
in  their  rates  and  charges  between  such  connecting  Unes;  but 
this  shall  not  be  construed  as  requiring  any  such  common  carrier 
to  give  the  use  of  its  tracks  or  terminal  facihties  to  another  carrier 
engaged  in  like  business. 

Sec.  4.  That  it  shall  be  unlawful  for  any  common  carrier 
subject  to  the  provisions  of  this  Act  to  charge  or  receive  any 
greater  compensation  in  the  aggregate  for  the  transportation 
of  passengers  or  of  like  kind  of  property,  under  substantially 
similar  circumstances  and  conditions,  for  a  shorter  than  for  a 
longer  distance  over  the  same  line,  in  the  same  direction,  the 
shorter  being  included  within  the  longer  distance;  but  this  shall 
not  be  construed  as  authorizing  any  common  carrier  within  the 
terms  of  this  Act  to  charge  and  receive  as  great  compensation  for 
a  shorter  as  for  a  longer  distance:  Provided,  however.  That  upon 
application  to  the  Commission  appointed  under  the  provisions 
of  this  Act,  such  common  carrier  may,  in  special  cases,  after  in- 
vestigation by  the  Commission,  be  authorized  to  charge  less  for 
longer  than  for  shorter  distances  for  the  transportation  of  passen- 
gers or  property;  and  the  Commission  may  from  time  to  time 
prescribe  the  extent  to  which  such  designated  common  carrier 
may  be  relieved  from  the  operation  of  this  section  of  this  Act. 

Sec.  5.  That  it  shall  be  unlawful  for  any  common  carrier 
subject  to  the  provisions  of  this  Act  to  enter  into  any  contract, 
agreement,  or  combination  with  any  other  common  carrier  or 
carriers  for  the  pooling  of  freights  of  different  and  competing 
railroads,  or  to  divide  between  them  the  aggregate  or  net  proceeds 
of  the  earnings  of  such  railroads,  or  any  portion  thereof:  and  in 
any  case  of  an  agreement  for  the  pooling  of  freights  as  aforesaid, 
each  day  of  its  continuance  shall  be  deemed  a  separate  offense. 

Sec.  6  {Amended  March  i,  1889.  Folloicirig  section  substi- 
tuled  June  29,  1906).  That  every  common  carrier  subject  to  the 
provisions  of  this  Act  shall  file  with  the  Commission  created  by 


218  APPENDIX 

this  Act  and  print  and  keep  open  to  public  inspection  schedules 
showing  all  the  rates,  fares,  and  charges  for  transportation 
between  different  points  on  its  own  route  and  between  points  on 
its  own  route  and  points  on  the  route  of  any  other  carrier  by  rail- 
road, by  pipe  line,  or  by  water  when  a  through  route  and  joint 
rate  have  been  established.  If  no  joint  rate  over  the  through 
route  has  been  established,  the  several  carriers  in  such  through 
route  shall  file,  print,  and  keep  open  to  public  inspection,  as 
aforesaid,  the  separately  established  rates,  fares  and  charges 
applied  to  the  through  transportation.  The  schedules  printed 
as  aforesaid  by  any  such  common  carrier  shall  plainly  state  the 
places  between  which  property  and  passengers  will  be  carried, 
and  shall  contain  the  classification  of  freight  in  force,  and  shall 
also  state  separately  all  terminal  charges,  storage  charges,  icing 
charges,  and  all  other  charges  which  the  Commission  may 
require,  all  privileges  or  facilities  granted  or  allowed  and  any 
rules  or  regulations  which  in  any  Tvise  change,  affect,  or  deter- 
mine any  part  or  the  aggregate  of  such  aforesaid  rates,  fares,  and 
charges,  or  the  value  of  the  service  rendered  to  the  passenger, 
shipper,  or  consignee.  Such  schedules  shall  be  plainly  printed  in 
large  type,  and  copies  for  the  use  of  the  public  shall  be  kept 
posted  in  two  public  and  conspicuous  places  in  every  depot, 
station,  or  office  of  such  carrier  where  passengers  or  freight, 
respectively,  are  received  for  transportation,  in  such  form  that 
they  shall  be  accessible  to  the  pubhc  and  can  be  conveniently 
inspected.  The  provisions  of  this  section  shall  apply  to  all  traffic, 
transportation,  and  facilities  defined  in  this  Act. 

Any  common  carrier  subject  to  the  provisions  of  this  Act 
receiving  freight  in  the  United  States  to  be  carried  through  a 
foreign  country  to  any  place  in  the  United  States  shall  also  in 
like  manner  print  and  keep  open  to  public  inspection,  at  every 
depot  or  office  where  such  freight  is  received  for  shipment, 
schedules  showing  the  through  rates  established  and  charged 
by  such  common  carrier  to  all  points  in  the  United  States  beyond 
the  foreign  country  to  which  it  accepts  freight  for  shipment; 
and  any  freight  shipped  from  the  United  States  through  a  foreign 
country  into  the  United  States  the  through  rate  on  which  shall 
not  have  been  made  public,  as  required  by  this  Act,  shall,  before 
it  is  admitted  into  the  United  States  from  said  foreign  country, 
be  subject  to  customs  duties  as  if  said  freight  were  of  foreign 
production. 


APPENDIX  219 

No  change  shall  be  made  in  the  rates,  fares,  and  charges  or 
joint  rates,  fares,  and  charges  which  have  been  filed  and  pub- 
lished by  any  common  carrier  in  comphance  with  the  retiuire- 
ments  of  this  section,  exce|)t  after  thirty  days'  notice  to  the 
Commission  and  to  the  public  published  as  aforesaid,  which 
shall  plainly  state  the  changes  proposed  to  be  made  in  the  sched- 
ule then  in  force  and  the  time  when  the  changed  rates,  fares,  or 
charges  will  go  into  effect;  and  the  proposed  changes  shall  be 
shown  by  printing  new  schedules,  or  shall  be  plainly  indicated 
upon  the  schedules  in  force  at  the  time  and  kept  open  to  public 
inspection :  Provided,  That  the  Commission  may,  in  its  discretion 
and  for  good  cause  shown,  allow  changes  upon  less  than  the 
notice  herein  specified,  or  modify  the  requirements  of  this  section 
in  respect  to  publishing,  posting,  and  filing  of  tariffs,  either  in 
particular  instances  or  by  a  general  order  a{)plicable  to  special 
or  peculiar  circumstances  or  conditions. 

The  names  of  the  several  carriers  which  are  parties  to  any 
joint  tariff  shall  be  specified  therein,  and  each  of  the  parties 
thereto,  other  than  the  one  filing  the  same,  shall  file  with  the 
Commission  such  evidence  of  concurrence  therein  or  acceptance 
thereof  as  may  be  required  or  approved  by  the  Commission, 
and  where  such  evidence  of  concurrence  or  acceptance  is  filed  it 
shall  not  be  necessary  for  the  carriers  filing  the  same  to  also  file 
copies  of  the  tariffs  in  which  they  are  named  as  parties. 

Every  common  carrier  subject  to  this  Act  shall  also  file  with 
said  Commission  copies  of  all  contracts,  agreements,  or  arrange- 
ments with  other  common  carriers  in  relation  to  any  traffic 
affected  by  the  pro\nsions  of  this  Act  to  which  it  may  be  a  party. 
The  Commission  may  determine  and  prescribe  the  form  in 
which  the  schedules  required  by  this  section  to  be  kept  open 
to  public  inspection  shall  be  prepared  and  arranged  and  may 
change  the  form  from  time  to  time  as  shall  be  found  expedient. 
No  carrier,  unless  otherwise  provided  by  this  Act,  shall  engage 
or  participate  in  the  transportation  of  passengers  or  property, 
as  defined  in  this  Act,  unless  tlie  rates,  fares,  and  charges  upon 
which  the  same  are  transported  by  said  carrier  have  been  filed 
and  published  in  accordance  uith  the  provisions  of  this  Act:  nor 
shall  any  carrier  charge  or  demand  or  collect  or  receive  a  greater 
or  less  or  different  compensation  for  such  transportation  of 
passengers  or  property,  or  for  any  service  in  connection  there- 
with, between  the  points  named  in  such  tariffs  than  the  rates, 


220  APPENDIX 

fares,  and  charges  which  are  specified  in  the  tariff  filed  and  in 
effect  at  the  time;  nor  shall  any  carrier  refund  or  remit  in  any 
manner  or  by  any  device  any  portion  of  the  rates,  fares,  and 
charges  so  specified,  nor  extend  to  any  shipper  or  person  any 
privileges  or  facilities  in  the  transportation  of  passengers  or 
property,  except  such  as  are  specified  in  such  tariffs:  Provided, 
that  wherever  the  word  "carrier"  occurs  in  this  Act  it  shall  be 
held  to  mean  "common  carrier." 

That  in  time  of  war  or  threatened  war  preference  and  prece- 
dence shall,  upon  the  demand  of  the  President  of  the  United 
States,  be  given,  over  ail  other  traffic,  to  the  transportation  of 
troops  and  material  of  war,  and  carriers  shall  adopt  every  means 
within  their  control  to  facilitate  and  expedite  the  military  traffic. 

Sec.  7.  That  it  shall  be  unlawful  for  any  common  carrier 
subject  to  the  provisions  of  this  Act  to  enter  into  any  combina- 
tion, contract,  or  agreement,  expressed  or  implied,  to  prevent, 
by  change  of  time  schedule,  carriage  in  different  cars,  or  by  other 
means  or  de\'ices,  the  carriage  of  freights  from  being  continuous 
from  the  place  of  shipment  to  the  place  of  destination;  and  no 
break  of  bulk,  stoppage,  or  interruption  made  by  such  common 
carrier  shall  prevent  the  carriage  of  freights  from  bang  and  being 
treated  as  one  continuous  carriage  from  the  place  of  shipment 
to  the  place  of  destination,  unless  such  break,  stoppage,  or  inter- 
ruption was  made  in  good  faith  for  some  necessary  purpose, 
and  without  any  intent  to  avoid  or  unnecessarily  interrupt  such 
continuous  carriage  or  to  evade  any  of  the  provisions  of  this  Act. 

Sec.  8.  That  in  case  any  common  carrier  subject  to  the  pro- 
visions of  this  Act  shall  do,  cause  to  be  done,  or  permit  to  be 
done  any  act,  matter,  or  thing  in  this  Act  prohibited  or  declared 
to  be  unlawful,  or  shall  omit  to  do  any  Act,  matter,  or  thing  in 
this  Act  required  to  be  done,  such  common  carrier  shall  be  liable 
to  the  person  or  persons  injured  thereby  for  the  full  amount  of 
damages  sustained  in  consequence  of  any  such  violation  of  the 
provisions  of  this  Act,  together  with  a  reasonable  counsel  or 
attorney's  fee,  to  be  fixed  by  the  court  in  every  case  of  recovery, 
which  attorney's  fee  shall  be  taxed  and  collected  as  part  of  the 
costs  in  the  case. 

Sec.  9.  That  any  person  or  persons  claiming  to  be  damaged 
by  any  common  carrier  subject  to  the  provisions  of  this  Act  may 
either  make  complaint  to  the  Commission  as  hereinafter  provided 
for,  or  may  bring  suit  in  his  or  their  own  behalf  for  the  recovery 


APPENDIX  821 

of  the  damages  for  which  such  common  carrier  may  be  liable 
uiuler  the  provisions  of  this  Act,  in  any  district  or  circuit  court 
of  the  United  States  of  competent  jurisdiction;  but  such  |>erson 
or  persons  shall  not  have  the  right  to  pursue  both  of  said  remedies, 
and  must  in  each  case  elect  which  one  of  the  two  methods  of 
procedure  herein  provided  for  he  or  they  will  adopt.  In  any  such 
action  brought  for  the  recovery  of  damages  the  court  before 
which  the  same  shall  be  pending  may  compel  any  director,  officer, 
receiver,  trustee,  or  agent  of  the  corporation  or  company  defend- 
ant in  such  suit  to  attend,  appear,  and  testify  in  such  case,  and 
may  compel  the  production  of  the  books  and  papers  of  such 
corporation  or  company  party  to  any  such  suit;  the  claim  that  any 
such  testimony  or  evidence  may  tend  to  criminate  the  person 
giving  such  evidence  shall  not  excuse  such  witness  from  testifying, 
but  such  evidence  or  testimony  shall  not  be  used  against  such 
person  on  the  trial  of  any  criminal  proceeding. 

Sec.  10  (As  amended  March  2,  1889).  That  any  common 
carrier  subject  to  the  provisions  of  this  Act,  or,  whenever  such 
common  carrier  is  a  corporation,  any  director  or  officer  thereof, 
or  any  receiver,  trustee,  lessee,  agent,  or  person,  acting  for  or 
employed  by  such  corporation,  who,  alone  or  •nnth  any  other 
corporation,  company,  person,  or  party,  shall  willfully  do  or 
cause  to  be  done,  or  shall  willingly  suffer  or  permit  to  be  done, 
any  act,  matter,  or  thing  in  this  Act  prohibited  or  declared  to  be 
unlawful,  or  who  shall  aid  or  abet  therein,  or  shall  willfully  omit 
or  fail  to  do  any  act,  matter,  or  thing  in  this  Act  required  to  be 
done,  or  shall  cause  or  \\allingly  suffer  or  permit  any  act,  matter, 
or  thing  so  directed  or  required  by  this  Act  to  be  done  not  to  be 
so  done,  or  shall  aid  or  abet  any  such  omission  or  failure,  or  shall 
be  guilty  of  any  infraction  of  this  Act,  or  shall  aid  or  abet  therein, 
shall  be  deemed  guilty  of  a  misdemeanor,  and  shall,  upon  con- 
viction thereof  in  any  district  court  of  the  United  States  within 
the  jurisdiction  of  which  such  offense  was  committed,  be  subject 
to  a  fine  of  not  to  exceed  five  thousand  dollars  for  each  offense: 
Provided,  That  if  the  offense  for  which  any  person  shall  be  con- 
victed as  aforesaid  shall  be  an  unla^'ful  discrimination  in  rates, 
fares,  or  charges,  for  the  transportation  of  passengers  or  property, 
such  person  shall,  in  addition  to  the  fine  hereinbefore  provided 
for,  be  liable  to  imprisonment  in  the  penitentiary  for  a  term  of 
not  exceeding  two  years,  or  both  such  fine  and  imprisonment,  in 
the  discretion  of  the  court. 


222  APPENDIX 

Any  common  carrier  subject  to  the  provisions  of  this  Act,  or, 
whenever  such  common  carrier  is  a  corporation,  any  oflBcer  or 
agent  thereof,  or  any  person  acting  for  or  employed  by  such 
corporation,  who,  by  means  of  false  billing,  false  classification, 
false  weighing,  or  false  report  of  weight,  or  by  any  other  device 
or  means,  shall  knowingly  and  willfully  assist,  or  shall  willingly 
suffer  or  permit,  any  person  or  persons  to  obtain  transportation 
for  property  at  less  than  the  regular  rates  then  established  and 
in  force  on  the  line  of  transportation  of  such  common  carrier, 
shall  be  deemed  guUty  of  a  misdemeanor,  and  shall,  upon  con- 
viction thereof  in  any  court  of  the  United  States  of  competent 
jurisdiction  within  the  district  in  which  such  offense  was  com- 
mitted, be  subject  to  a  fine  of  not  exceeding  five  thousand  dollars, 
or  imprisonment  in  the  penitentiary  for  a  term  of  not  exceeding 
two  years,  or  both,  in  the  discretion  of  the  court,  for  each  offense. 
Any  person  and  any  officer  or  agent  of  any  corporation  or 
company  who  shall  deliver  property  for  transportation  to  any 
common  carrier,  subject  to  the  provisions  of  this  act,  or  for 
whom  as  consignor  or  consignee  any  such  carrier  shall  transport 
property,  who  shall  knowingly  and  willfully,  by  false  bilHng, 
false  classification,  false  weighing,  false  representation  of  the 
contents  of  the  package,  or  false  report  of  weight,  or  by  any  other 
device  or  means,  whether  with  or  without  the  consent  or  conni- 
vance of  the  carrier,  its  agent  or  agents,  obtain  transportation 
for  such  property  at  less  than  the  regular  rates  then  established 
and  in  force  on  the  line  of  transportation,  shall  be  deemed  guilty 
of  fraud,  which  is  hereby  declared  to  be  a  misdemeanor,  and 
shall,  upon  conviction  thereof  in  any  court  of  the  United  States 
of  competent  jurisdiction  within  the  district  in  which  such 
offense  was  committed,  be  subject  for  each  offense  to  a  fine  of 
not  exceeding  five  thousand  dollars  or  imprisonment  in  the 
penitentiary  for  a  term  of  not  exceeding  two  years,  or  both,  in 
the  discretion  of  the  court. 

If  any  such  person,  or  any  officer  or  agent  of  any  such  corpora- 
tion or  company,  shall,  by  payment  of  money  or  other  thing  of 
value,  solicitation,  or  otherwise,  induce  any  common  carrier 
subject  to  the  provisions  of  this  Act,  or  any  of  its  officers  or  agents, 
to  discriminate  unjustly  in  his,  its,  or  their  favor  as  against  any 
other  consignor  or  consignee  in  the  transportation  of  property, 
or  shall  aid  or  abet  any  common  carrier  in  any  such  unjust  dis- 
crimination, such  person  or  such  officer  or  agent  of  such  corpora- 


APPENDIX  228 

tion  or  company  shall  be  deemed  guilty  of  a  misdemeanor,  and 
shall,  ujjon  couviction  thereof  in  any  court  of  the  United  States 
of  competent  jurisdiction  \\ithin  the  district  in  which  such 
offense  was  committed,  be  subject  to  a  fine  of  not  exceeding  five 
thousand  dollars,  or  imprisonment  in  the  penitentiary  for  a  term 
of  not  exceeding  two  years,  or  both,  in  the  discretion  of  the  court, 
for  each  oilense;  and  such  person,  corporation,  or  company  shall 
also,  together  with  said  common  carrier,  be  liable,  jointly  or 
severally,  in  an  action  on  the  case  to  be  brought  by  any  consignor 
or  consignee  discriminated  against  in  any  court  of  the  United 
States  of  competent  jurisdiction  for  all  damages  caused  by  or 
resulting  therefrom. 

Sec.  11.  That  a  Commission  is  hereby  created  and  established 
to  be  known  as  the  Interstate  Commerce  Commission,  which 
shall  be  composed  of  five  Commissioners,  who  shall  be  appointed 
by  the  President,  by  and  with  the  ad\ice  and  consent  of  the 
Senate.  The  Commissioners  first  appointed  under  this  Act  shall 
continue  in  office  for  the  term  of  two,  three,  four,  five,  and  six 
years,  respectively,  from  the  first  day  of  January,  Anno  Domini 
eighteen  hundred  and  eighty-seven,  the  term  of  each  to  be  desig- 
nated by  the  President;  but  their  successors  shall  be  appointed 
for  terms  of  six  years,  except  that  any  person  chosen  to  fill  a 
vacancy  shall  be  appointed  only  for  the  unexpired  time  of  the 
Commissioner  whom  he  shall  succeed.  Any  Commissioner  may 
be  removed  by  the  President  for  inefficiency,  neglect  of  duty,  or 
malfeasance  in  office.  Not  more  than  three  of  the  Commissioners 
shall  be  appointed  from  the  same  pohtical  party.  No  person  in 
the  employ  of  or  holding  any  official  relation  to  any  common 
carrier  subject  to  the  pronsions  of  this  act,  or  owning  stock  or 
bonds  thereof,  or  who  is  in  any  manner  pecuniarily  interested 
therein,  shall  enter  upon  the  duties  of  or  hold,  such  office. 
Said  Commissioners  shall  not  engage  in  any  other  business,  voca- 
tion, or  employment.  No  vacancy  in  the  Commission  shall  im- 
pair the  right  of  the  remaining  Commissioners  to  exercise  all  the 
powers  of  the  Commission.    (See  section  24.) 

Sec.  12  (.If  amended  March  2,  1889,  and  February  10.  1891). 
That  the  Commi-ssion  hereby  created  shall  have  authority  to 
inquire  into  the  management  of  the  business  of  all  common 
carriers  subject  to  the  provisions  of  this  Act,  and  shall  keep  itself 
informed  as  to  the  manner  and  method  in  which  the  same  is 
conducted,  and  shall  have  the  right  to  obtain  from  such  common 


224  APPENDIX 

carriers  full  and  complete  information  necessary  to  enable  the 
Commission  to  perform  the  duties  and  carry  out  the  objects  for 
which  it  was  created;  and  the  Commission  is  hereby  authorized 
and  required  to  execute  and  enforce  the  provisions  of  this  Act; 
and,  upon  the  request  of  the  Commission,  it  shall  be  the  duty 
of  any  district  attorney  of  the  United  States  to  whom  the  Com- 
mission may  apply  to  institute  in  the  proper  court  and  to  prose- 
cute under  the  direction  of  the  Attorney-General  of  the  United 
States  all  necessary  proceedings  for  the  enforcement  of  the  pro- 
visions of  this  Act  and  for  the  punishment  of  all  violations  thereof, 
and  the  costs  and  expenses  of  such  prosecution  shall  be  paid  out 
of  the  appropriation  for  the  expenses  of  the  courts  of  the  United 
States;  and  for  the  purposes  of  this  Act  the  Commission  shall 
have  power  to  require,  by  subpcena,  the  attendance  and  testi- 
mony of  witnesses  and  the  production  of  all  books,  papers,  tariffs, 
contracts,  agreements,  and  documents  relating  to  any  matter 
under  investigation. 

Such  attendance  of  witnesses,  and  the  production  of  such 
documentary  evidence,  may  be  required  from  any  place  in  the 
United  States,  at  any  designated  place  of  hearing.  And  in  case 
of  disobedience  to  a  subpoena  the  Commission,  or  any  party  to 
a  proceeding  before  the  Commission,  may  invoke  the  aid  of  any 
court  of  the  United  States  in  requiring  the  attendance  and  testi- 
mony of  witnesses  and  the  production  of  books,  papers,  and 
documents  under  the  provisions  of  this  section. 

And  any  of  the  circuit  courts  of  the  United  States  within  the 
jurisdiction  of  which  such  inquiry  is  carried  on  may,  in  case  of 
contumacy  or  refusal  to  obey  a  subpoena  issued  to  any  common 
carrier  subject  to  the  provisions  of  this  Act,  or  other  person, 
issue  an  order  requiring  such  common  carrier  or  other  person 
to  appear  before  said  Commission  (and  produce  books  and 
papers  if  so  ordered)  and  give  evidence  touching  the  matter  in 
question;  and  any  failure  to  obey  such  order  of  the  court  may  be 
punished  by  such  court  as  a  contempt  thereof.  The  claim  that 
any  such  testimony  or  evidence  may  tend  to  criminate  the  person 
giving  such  evidence  shall  not  excuse  such  witness  from  testify- 
ing; but  such  evidence  or  testimony  shall  not  be  used  against 
such  person  on  the  trial  of  any  criminal  proceeding. 

The  testimony  of  any  witness  may  be  taken,  at  the  instance 
of  a  party  in  any  proceeding  or  investigation  depending  before 
the  Commission,  by  deposition,  at  any  time  after  a  cause  or 


APPENDIX  225 

proceeding  is  at  issue  on  petition  and  answer.  The  Commission 
may  also  order  testimony  to  be  taken  by  deposition  in  any  pro- 
ceeding or  investigation  pending  before  it,  at  any  stage  of  such 
proceeding  or  investigation.  Such  depositions  may  be  taken 
before  any  judge  of  any  court  of  the  United  States,  or  any  com- 
missioner of  a  circuit,  or  any  clerk  of  a  district  or  circuit  court, 
or  any  chancellor,  justice,  or  judge  of  a  supreme  or  superior 
court,  mayor  or  chief  magistrate  of  a  city,  judge  of  a  county 
court,  or  court  of  common  pleas  of  any  of  the  United  States, 
or  any  notary  public,  not  being  of  counsel  or  attorney  to  either 
of  the  parties,  nor  interested  in  the  event  of  the  proceeding  or 
investigation.  Reasonable  notice  must  first  be  given  in  wanting 
by  the  party,  or  his  attorney,  proposing  to  take  such  deposition 
to  the  opposite  party  or  his  attorney  of  record,  as  either  may  be 
nearest,  which  notice  shall  state  the  name  of  the  witness  and  the 
time  and  place  of  the  taking  of  his  deposition.  Any  person  may 
be  compelled  to  appear  and  depose,  and  to  produce  documentary 
endence,  in  the  same  manner  as  witnesses  may  be  compelled 
to  appear  and  testify  and  produce  documentary  evidence  before 
the  Commission  as  hereinbefore  pronded. 

Every  person  deposing  as  herein  pro\-ided  shall  be  cautioned 
and  sworn  (or  affirm,  if  he  so  request)  to  testify  the  whole  truth, 
and  shall  be  carefully  examined.  His  testimony  shall  be  reduced 
to  \vriting  by  the  magistrate  taking  the  deposition,  or  under  his 
direction,  and  shall,  after  it  has  been  reduced  to  waiting,  be  sub- 
scribed by  the  deponent. 

If  a  witness  whose  testimony  may  be  desired  to  be  taken  by 
deposition  be  in  a  foreign  country,  the  deposition  may  be  taken 
before  an  officer  or  person  designated  by  the  Commission,  or 
agreed  upon  by  the  parties  by  stipulation  in*wTiting  to  be  filed 
with  the  Commission.  All  depositions  must  be  promptly  filed 
with  the  Commission. 

Witnesses  whose  depositions  are  taken  pursuant  to  this  Act, 
and  the  magistrate  or  other  oflBcer  taking  the  same,  shall  severally 
be  entitled  to  the  same  fees  as  are  paid  for  like  services  in  the 
courts  of  the  United  States. 

Sec.  13.  That  any  person,  firm,  corporation,  or  association, 
or  any  mercantile,  agricultural,  or  manufacturing  society,  or  any 
body  politic  or  municipal  organization  complaining  of  anything 
done  or  omitted  to  be  done  by  any  common  carrier  subject  to  the 
provisions  of  this  Act  in  contravention  of  the  pro\isions  thereof, 


226  APPENDIX 

may  apply  to  said  Commission  by  petition,  which  shall  briefly 
state  the  facts;  whereupon  a  statement  of  the  charges  thus  made 
shall  be  forwarded  by  the  Commission  to  such  common  carrier, 
who  shall  be  called  upon  to  satisfy  the  complaint  or  to  answer 
the  same  in  writing  within  a  reasonable  time,  to  be  specified  by 
the  Commission.  If  such  common  carrier,  within  the  time  speci- 
fied, shall  make  reparation  for  the  injury  alleged  to  have  been 
done,  said  carrier  shall  be  relieved  of  liability  to  the  complainant 
only  for  the  particular  violation  of  law  thus  complained  of.  If 
such  carrier  shall  not  satisfy  the  complaint  within  the  time  speci- 
fied, or  there  shall  appear  to  be  any  reasonable  ground  for  investi- 
gating said  complaint,  it  shall  be  the  duty  of  the  Commission  to 
investigate  the  matters  complained  of  in  such  manner  and  by 
such  means  as  it  shall  deem  proper. 

Said  Commission  shall  in  like  manner  investigate  any  com- 
plaint forwarded  by  the  railroad  commissioner  or  railroad  com- 
mission of  any  State  or  Territory,  at  the  request  of  such  com- 
missioner or  commission,  and  may  institute  any  inquiry  on  its 
motion  in  the  same  manner  and  to  the  same  efiFect  as  though 
complaint  had  been  made. 

No  complaint  shall  at  any  time  be  dismissed  because  of  the 
absence  of  direct  damage  to  the  complainant. 

Sec.  14  (Amended  March  2,  1889,  and  June  29,  1906).  That 
whenever  an  investigation  shall  be  made  by  said  Commission, 
it  shall  be  its  duty  to  make  a  report  in  writing  in  respect  thereto, 
which  shall  state  the  conclusions  of  the  Commission,  together 
with  its  decision,  order,  or  requirement  in  the  premises;  and  in 
case  damages  are  awarded  such  report  shall  include  the  findings 
of  fact  on  which  the  award  is  made. 

All  reports  of  investigations  made  by  the  Commission  shall  be 
entered  of  record,  and  a  copy  thereof  shall  be  furnished  to  the 
party  who  may  have  complained,  and  to  any  common  carrier 
that  may  have  been  complained  of. 

The  Commission  may  provide  for  the  publication  of  its  reports 
and  decisions  in  such  form  and  manner  as  may  be  best  adapted 
for  public  information  and  use,  and  such  authorized  publications 
shall  be  competent  evidence  of  the  reports  and  decisions  of  the 
Commission  therein  contained  in  all  courts  of  the  United  States 
and  of  the  several  States  without  any  further  proof  or  authentica- 
tion thereof.  The  Commission  may  also  cause  to  be  printed  for 
early  distribution  its  annual  reports. 


APPENDIX  227 

Sec.  15  (As  amended  June  29,  190G).  That  the  Commission 
is  authorized  and  empowered,  and  it  shall  be  its  duty,  whenever, 
after  full  hearing  upon  a  complaint  made  as  provided  in  section 
thirteen  of  this  Act,  or  upon  complaint  of  any  common  carrier, 
it  shall  be  of  the  opinion  that  any  of  the  rates,  or  charges  whatso- 
ever, demanded,  charged,  or  collected  by  any  common  carrier  or 
carriers,  subject  to  the  provisions  of  this  Act,  for  the  transporta- 
tion of  persons  or  property  as  defined  in  the  first  section  of  this 
Act,  or  that  any  regulations  or  practices  whatsoever  of  such  car- 
rier or  carriers  affecting  such  rates,  are  unjust  or  unreasonable, 
or  unjustly  discriminatory,  or  unduly  preferential  or  prejudicial, 
or  otherwise  in  violation  of  any  of  the  provisions  of  this  Act,  to 
determine  and  prescribe  what  will  be  the  just  and  reasonable 
rate  or  rates,  charge  or  charges,  to  be  thereafter  observed  in  such 
case  as  the  maximum  to  be  charged;  and  what  regulation  or 
practice  in  respect  to  such  transportation  is  just,  fair,  and  reason- 
able to  be  thereafter  followed;  and  to  make  an  order  that  the 
carrier  shall  cease  and  desist  from  such  violation,  to  the  extent 
to  which  the  Commission  find  the  same  to  exist,  and  shall  not 
thereafter  publish,  demand,  or  collect  any  rate  or  charge  for  such 
transportation  in  excess  of  the  maximum  rate  or  charge  so  pre- 
scribed, and  shall  conform  to  the  regulation  or  practice  so  pre- 
scribed. All  orders  of  the  Commission,  except  orders  for  the 
payment  of  money,  shall  take  effect  within  such  reasonable  time, 
not  less  than  thirty  days,  and  shall  continue  in  force  for  such 
period  of  time,  not  exceeding  two  years,  as  shall  be  prescribed 
in  the  order  of  the  Commission,  unless  the  same  shall  be  sus- 
pended or  modified  or  set  aside  by  the  Commission  or  be  sus- 
pended or  set  aside  by  a  court  of  competent  jurisdiction.  When- 
ever the  carrier  or  carriers,  in  obedience  to  such  order  of  the 
Commission  or  otherwise,  in  respect  to  joint  rates,  fares,  or 
charges,  shall  fail  to  agree  among  themselves  upon  the  apportion- 
ment or  division  thereof,  the  Commission  may  after  hearing 
make  a  supplemental  order  prescribing  the  just  and  reasonable 
proportion  of  such  joint  rate  to  be  received  by  each  carrier  party 
thereto,  which  order  shall  take  effect  as  a  part  of  the  original 
order. 

The  Commission  may  also,  after  hearing  on  a  complaint, 
establish  through  routes  and  joint  rates  as  the  maximum  to  be 
charged  and  prescribe  the  division  of  such  rates  as  hereinbefore 
provided,  and  the  terms  and  conditions  under  which  such  through 


228  APPENDIX 

routes  shall  be  operated,  when  that  may  be  necessary  to  giV« 
effect  to  any  provision  of  this  Act,  and  the  carriers  complained  of 
have  refused  or  neglected  to  voluntarily  establish  such  through 
routes  and  joint  rates,  provided  no  reasonable  or  satisfactory 
through  route  exists,  and  this  provision  shall  apply  when  one 
of  the  connecting  carriers  is  a  water  line. 

If  the  owner  of  property  transported  under  this  Act  directly 
or  indirectly  renders  any  service  connected  with  such  transporta- 
tion, or  furnishes  any  instrumentality  used  therein,  the  charge 
and  allowance  therefor  shall  be  no  more  than  is  just  and  reason- 
able, and  the  Commission  may,  after  hearing  on  a  complaint, 
determine  what  is  a  reasonable  charge  as  the  maximum  to  be 
paid  by  the  carrier  or  carriers  for  the  service  so  rendered  or  for 
the  use  of  the  instrumentality  so  furnished,  and  fix  the  same  by 
appropriate  order,  which  order  shall  have  the  same  force  and 
effect  and  be  enforced  in  like  manner  as  the  orders  above  pro- 
vided for  in  this  section. 

The  foregoing  enumeration  of  powers  shall  not  exclude  any 
power  which  the  Commission  would  otherwise  have  in  the 
making  of  an  order  under  the  provisions  of  this  Act. 

Sec.  16  (Amended  March  2,  1889.  Folloioing  section  substi- 
tuted June  29,  1906).  That  if,  after  hearing  on  a  complaint  made 
as  provided  in  section  thirteen  of  this  Act,  the  Commission 
shall  determine  that  any  party  complainant  is  entitled  to  an 
award  of  damages  under  the  provisions  of  this  Act  for  a  violation 
thereof,  the  Commission  shall  make  an  order  directing  the  car- 
rier to  pay  to  the  complainant  the  sum  to  which  he  is  entitled  on 
or  before  a  day  named. 

If  a  carrier  does  not  comply  with  an  order  for  the  payment 
of  money  within  the  time  limit  in  such  order,  the  complainant, 
or  any  person  for  whose  benefit  such  order  was  made,  may  file 
in  the  circuit  court  of  the  United  States  for  the  district  in  which 
he  resides  or  in  which  is  located  the  principal  operating  office 
of  the  carrier,  or  tltrough  which  the  road  of  the  carrier  runs,  a 
petition  setting  forth  briefly  the  causes  for  which  he  claims 
damages,  and  the  order  of  the  Commission  in  the  premises. 
Such  suit  shall  proceed  in  all  respects  like  other  civil  suits  for 
damages,  except  that  on  the  trial  of  such  suit  the  findings  and 
order  of  the  Commission  shall  be  prima  facie  evidence  of  the 
facts  therein  stated,  and  except  that  the  petitioner  shall  not  be 
liable  for  costs  in  the  circuit  com*t  nor  for  costs  at  any  subsequent 


APPENDIX  229 

stage  of  the  proceedings  unless  they  accrue  upon  his  appeal.  If 
the  petitioner  shall  finally  prevail  he  shall  be  allowed  a  reason- 
able attorney's  fee,  to  be  taxed  and  collected  as  a  part  of  the 
costs  of  the  suit.  All  complaints  for  the  recovery  of  damages  shall 
be  filed  with  the  Commission  within  two  years  from  the  time 
the  cause  of  action  accrues,  and  not  after,  and  a  petition  for 
the  enforcement  of  an  order  for  the  payment  of  money  sliall  be 
filed  in  the  circuit  court  within  one  year  from  the  date  of  the 
order,  and  not  after:  Provided,  That  claims  accrued  prior  to 
the  passage  of  this  Act  may  be  presented  within  one  year. 

In  such  suits  all  parties  in  whose  favor  the  Commission  may 
have  made  an  award  for  damages  by  a  single  order  may  be 
joined  as  plaintiffs,  and  all  of  the  carriers  parties  to  such  order 
awarding  sucii  damages  may  be  joined  as  defendants,  and  such 
suit  may  be  maintained  by  such  joint  plaintiffs  and  against  such 
joint  defendants  in  any  district  where  any  one  of  such  joint 
plaintiffs  could  maintain  such  suit  against  any  one  of  such  joint 
defendants;  and  serxice  of  process  against  any  one  of  such 
defendants  as  may  not  be  found  in  the  district  where  the  suit  is 
brought  may  be  made  in  any  district  where  such  defendant 
carrier  has  its  principal  operating  office.  In  case  of  such  joint 
suit  the  recovery,  if  any,  may  be  by  judgment  in  favor  of  any 
one  of  such  plaintiffs,  against  the  defendant  found  to  be  liable 
to  such  plaintiff. 

Every  order  of  the  Commission  shall  be  forthwith  served  by 
mailing  to  any  one  of  the  principal  officers  or  agents  of  the  car- 
rier at  his  usual  place  of  business  a  copy  thereof;  and  the  registry 
mail  receipt  shall  be  prima  facie  e\adence  of  the  receipt  of  such 
order  by  the  carrier  in  due  course  of  mail. 

The  Commission  shall  be  authorized  to  suspend  or  modify  its 
orders  upon  such  notice  and  in  such  manner  as  it  shall  deem 
proper. 

It  shall  be  the  duty  of  every  common  carrier,  its  agents  and 
employees,  to  observe  and  comply  with  such  orders  so  long  as 
the  same  shall  remain  in  effect. 

Any  carrier,  any  officer,  representative,  or  agent  of  a  carrier, 
or  any  receiver,  trustee,  lessee,  or  agent  of  either  of  them,  who 
knowingly  fails  or  neglects  to  obey  any  order  made  under  the 
pro\isions  of  section  fifteen  of  this  Act  shall  forfeit  to  the 
United  States  the  sum  of  five  thousand  dollars  for  each  offense. 
Every  distinct  violation  shall  be  a  separate  offense,  and  in  case 


230  APPENDIX 

of  a  continuing  violation  each  day  shall  be  deemed  a  separate 
oflFense. 

The  forfeiture  provided  for  in  this  Act  shall  be  payable  into 
the  Treasury  of  the  United  States,  and  shall  be  recoverable  in  a 
civil  suit  in  the  name  of  the  United  States,  brought  in  the  district 
where  the  carrier  has  its  principal  operating  office,  or  in  any 
district  through  which  the  road  of  the  carrier  runs. 

It  shaU  be  the  duty  of  the  various  district  attorneys,  under 
the  direction  of  the  Attorney-General  of  the  United  States,  to 
prosecute  for  the  recovery  of  forfeitures.  The  costs  and  expenses 
of  such  prosecution  shall  be  paid  out  of  the  appropriation  for  the 
expenses  of  the  courts  of  the  United  States.  The  Commission 
may,  with  the  consent  of  the  Attorney-General,  employ  special 
counsel  in  any  proceeding  imder  this  Act,  paying  the  expenses 
of  such  employment  out  of  its  own  appropriation. 

If  any  carrier  fails  or  neglects  to  obey  any  order  of  the  Com- 
mission, other  than  for  the  payment  of  money,  while  the  same  is 
in  eflFect,  any  party  injured  thereby,  or  the  Commission  in  its 
own  name,  may  apply  to  the  circuit  court  in  the  district  where 
such  carrier  has  its  principal  operating  office,  or  in  which  the 
violation  or  disobedience  of  such  order  shall  happen,  for  an 
enforcement  of  such  order.  Such  application  shall  be  by  petition, 
which  shall  state  the  substance  of  the  order  and  the  respect  in 
which  the  carrier  has  failed  of  obedience,  and  shall  be  served 
upon  the  carrier  in  such  manner  as  the  court  may  direct,  and  the 
coiu"t  shall  prosecute  such  inquiries  and  make  such  investigations, 
through  such  means  as  it  shall  deem  needful  in  the  ascertainment 
of  the  facts  at  issue  or  which  may  arise  upon  the  hearing  of  such 
petition.  If,  upon  such  hearing  as  the  court  may  determine  to  be 
necessary,  it  appears  that  the  order  was  regularly  made  and  duly 
served,  and  that  the  carrier  is  in  disobedience  of  the  same,  the 
court  shall  enforce  obedience  to  such  order  by  a  writ  of  injunc- 
tion, or  other  proper  process,  mandatory  or  otherwise,  to  restrain 
such  carrier,  its  officers,  agents,  or  representatives,  from  further 
disobedience  of  such  order,  or  to  enjoin  upon  it,  or  them,  obe- 
dience to  the  same;  and  in  the  enforcement  of  such  process  the 
court  shall  have  those  powers  ordinarily  exercised  by  it  in  com- 
pelling obedience  to  its  writs  of  injunction  and  mandamus. 

From  any  action  upon  such  petition  an  appeal  shall  lie  by 
either  party  to  the  Supreme  Court  of  the  United  States,  and  in 
such  court  the  case  shall  have  priority  in  hearing  and  determina- 


APPENDIX  231 

tion  over  all  other  causes  except  criminal  causes,  but  such  appeal 
shall  not  vacate  or  suspend  the  order  appealed  from. 

The  venue  of  suits  brought  in  any  of  the  circuit  courts  of  the 
United  States  against  the  Commission  to  enjoin,  set  aside,  annul, 
or  suspend  any  order  or  requirement  of  the  Commission  shall  be 
in  the  district  where  the  carrier  against  whom  such  order  or 
requirement  may  have  been  made  has  its  principal  operating 
office,  and  may  be  brought  at  any  time  after  such  order  is  pro- 
mulgated. And  if  the  order  or  requirement  has  been  made  against 
two  or  more  carriers  then  in  the  district  where  any  one  of  said 
carriers  has  its  {)rincipal  operating  office,  and  if  the  carrier  haa 
its  principal  operating  office  in  the  District  of  Columbia  then 
the  venue  shall  be  in  the  district  where  said  carrier  has  its  prin- 
cipal office;  and  jurisdiction  to  hear  and  determine  such  suits 
is  hereby  vested  in  such  courts.  The  provisions  of  "An  Act  to 
expedite  the  hearing  and  determination  of  suits  in  equity,  and 
so  forth,"  approved  February  eleventh,  nineteen  hundred  and 
three,  shall  be,  and  are  hereby,  made  appHcable  to  all  such  suits, 
including  the  hearing  on  an  application  for  a  prehminary  injunc- 
tion, and  are  also  made  applicable  to  any  proceeding  in  equity 
to  enforce  any  order  or  requirement  of  the  Commission,  or  any 
of  the  provisions  of  the  Act  to  regulate  commerce  approved 
February  fourth,  eighteen  hundred  and  eighty-seven,  and  all 
Acts  amendatory  thereof  or  supplemental  thereto.  It  shall  be 
the  duty  of  the  Attorney-General  in  every  such  case  to  file  the 
certificate  provided  for  in  said  expediting  Act  of  February 
eleventh,  nineteen  hundred  and  tliree,  as  necessary  to  the  appli- 
cation of  the  proWsions  thereof,  and  upon  appeal  as  therein 
authorized  to  the  Supreme  Court  of  the  United  States,  the  case 
shall  have  in  such  court  priority  in  hearing  and  determination 
over  all  other  causes  except  criminal  causes:  Proinded,  That  no 
injunction,  interlocutory  order  or  decree  suspending  or  restrain- 
ing the  enforcement  of  an  order  of  the  Commission  .shall  be 
granted  except  on  hearing  after  not  less  than  five  days'  notice 
to  the  Commission.  An  appeal  may  be  taken  from  any  interlocu- 
tory order  or  decree  granting  or  continuing  an  injunction  in  any 
suit,  but  shall  lie  only  to  the  Supreme  Court  of  the  Unite<l  States: 
Provided  further.  That  the  appeal  must  be  taken  vrithin  thirty 
days  from  the  entry  of  such  order  or  decree  and  it  shall  take 
preceilence  in  the  appellate  court  over  all  other  causes,  except 
causes  of  like  character  and  criminal  causes. 


232  APPENDIX 

The  copies  of  schedules  and  tariffs  of  rates,  fares,  and  charges, 
and  of  all  contracts,  agreements,  or  arrangements  between 
common  carriers  filed  with  the  Commission  as  herein  provided, 
and  the  statistics,  tables,  and  figures  contained  in  the  annual 
reports  of  carriers  made  to  the  Commission,  as  required  by  the 
provisions  of  this  Act,  shall  be  preserved  as  pubUc  records  in  the 
custody  of  the  secretary  of  the  Commission,  and  shall  be  received 
as  'prima  facie  e^ddence  of  what  they  purport  to  be  for  the  pur- 
pose of  investigations  by  the  Commission  and  in  all  judicial  pro- 
ceedings; and  copies  of  or  extracts  from  any  of  said  schedules, 
tariffs,  contracts,  agreements,  arrangements,  or  reports  made 
public  records  as  aforesaid,  certified  by  the  secretary  under  its 
seal,  shall  be  received  in  evidence  with  like  effect  as  the  originals. 

Sec.  16a  {Added  June 'i^,  1906).  That  after  a  decision,  order, 
or  requirement  has  been  made  by  the  Commission  in  any  pro- 
ceeding any  party  thereto  may  at  any  time  make  application  for 
rehearing  of  the  same,  or  any  matter  determined  therein,  and 
it  shall  be  lawful  for  the  Commission  in  its  discretion  to  grant 
such  a  rehearing  if  sufficient  reason  therefor  be  made  to  appear. 
AppUcations  for  rehearing  shall  be  governed  by  such  general 
rules  as  the  Commission  may  estabHsh.  No  such  application  shall 
excuse  any  carrier  from  complying  with  o"  obejang  any  decision, 
order,  or  requirement  of  the  Commission,  or  operate  in  any 
manner  to  stay  or  postpone  the  enforcement  thereof,  without  the 
special  order  of  the  Commission.  In  case  a  rehearing  is  granted 
the  proceedings  thereupon  shall  conform  as  nearly  as  may  be  to 
the  proceedings  in  an  original  hearing,  except  as  the  Commission 
may  otherwise  direct;  and  if,  in  its  judgment,  after  such  rehearing 
and  the  consideration  of  all  facts,  including  those  arising  since 
the  former  hearing,  it  shall  appear  that  the  original  decision, 
order,  or  requirement  is  in  any  respect  unjust  or  unwarranted, 
the  Commission  may  reverse,  change,  or  modify  the  same 
accordingly.  Any  decision,  order,  or  requirement  made  after 
such  rehearing,  reversing,  changing,  or  modifying  the  original 
determination  shall  be  subject  to  the  same  provisions  as  an 
original  order. 

Sec.  17  {As  amended  March  2,  1889).  That  the  Commission 
may  conduct  its  proceedings  in  such  manner  as  will  best  conduce 
to  the  proper  dispatch  of  business  and  to  the  ends  of  justice.  A 
majority  of  the  Commission  shall  constitute  a  quorum  for  the 
transaction  of  business,  but  no  Commissioner  shall  participate 


APPENDIX  233 

in  any  hearing  or  proceeding  in  which  he  has  any  pecuniary 
interest.  Said  Commission  may,  from  time  to  time,  make  or 
amend  such  general  rules  or  orders  as  may  be  requisite  for  the 
order  and  regulation  of  proceedings  before  it,  including  forms  of 
notices  and  the  sernce  thereof,  which  shall  conform,  as  nearly  as 
may  be,  to  those  in  use  in  the  courts  of  the  United  States.  Any 
party  may  appear  before  said  Commission  and  be  heard,  in 
person  or  by  attorney.  Every  vote  and  oflBcial  act  of  the  Com- 
mission shall  be  entered  of  record,  and  its  proceedings  shall  be 
public  upon  the  request  of  either  party  interested.  Said  Com- 
mission shall  have  an  official  seal,  wliich  shall  be  judicially 
noticed.  Either  of  the  members  of  the  Commission  may  admin- 
ister oaths  and  affirmations  and  sign  subpoenas. 

Sec.  18  {As  amended  March  2,  1889).  [See  Section  24.]  That 
each  Commissioner  shall  receive  an  annual  salary  of  seven 
thousand  five  hundred  dollars,  payable  in  the  same  manner  as 
the  judges  of  the  courts  of  the  United  States.  The  Commi.ssion 
shall  a{)point  a  secretary,  who  shall  receive  an  annual  salary  of 
three  thousand  five  hundred  dollars,  payable  in  hke  manner. 
The  Commission  shall  have  authority  to  employ  and  fi.v  the 
compensation  of  such  other  employees  as  it  may  find  necessary 
to  the  proper  performance  of  its  duties.  Until  otherwise  provided 
by  law,  the  Commission  may  hire  suitable  offices  for  its  use,  and 
shall  have  authority  to  procure  all  necessary  oflSce  supphes. 
Witnesses  summoned  before  the  Commission  shall  be  paid  the 
same  fees  and  mileage  that  are  paid  witnesses  in  the  courts  of 
the  United  States. 

All  of  the  expenses  of  the  Commission,  including  all  necessary 
expenses  for  transportation  incurred  by  the  Commissioners,  or 
by  their  employees  under  their  orders,  in  making  any  investiga- 
tion, or  upon  official  business  in  any  other  places  than  in  the  city 
of  Washington,  shall  be  allowed  and  paid  on  the  presentation 
of  itemized  vouchers  therefor  approved  by  the  chairman  of  the 
Commission. 

Sec.  19.  That  the  principal  oflSce  of  the  Commission  shall  be 
in  the  city  of  Washington,  where  its  general  sessions  shall  be 
held;  but  whenever  the  convenience  of  the  public  or  the  parties 
may  be  promoted,  or  delay  or  expense  prevented  thereby,  the 
Commission  may  hold  special  sessions  in  any  part  of  the  United 
States.  It  may,  by  one  or  more  of  the  Commissioners,  prosecute 
any  inquiry  necessary  to  its  duties,  in  any  part  of  the  United 


234 


APPENDIX 


States,  into  any  matter  or  question  of  fact  pertaining  to  the  busi- 
ness of  any  common  carrier  subject  to  the  provisions  of  this 
Act. 

Sec.  20  (As  amended  June  29,  1906).  That  the  Commission 
is  hereby  authorized  to  require  annual  reports  from  all  common 
carriers  subject  to  the  provisions  of  this  Act,  and  from  the 
owners  of  all  railroads  engaged  in  interstate  commerce  as  defined 
in  this  Act;  to  prescribe  the  manner  in  which  such  reports  shall 
be  made,  and  to  require  from  such  carriers  specific  answers  to 
all  questions  upon  which  the  Commission  may  need  information. 
Such  annual  reports  shall  show  in  detail  the  amount  of  capital 
stock  issued,  the  amounts  paid  therefor,  and  the  manner  of  pay- 
ment for  the  same;  the  dividends  paid,  the  surplus  fund,  if  any, 
and  the  number  of  stockholders;  the  funded  and  floating  debts 
and  the  interest  paid  thereon;  the  cost  and  value  of  the  carrier's 
property,  franchises,  and  equipments;  the  number  of  employees 
:ind  the  salaries  paid  each  class;  the  accidents  to  passengers, 
employees,  and  other  persons,  and  the  causes  thereof;  the 
amounts  expended  for  improvements  each  year,  how  expended, 
and  the  character  of  such  improvements;  the  earnings  and 
receipts  from  each  branch  of  business  and  from  all  sources; 
the  operating  and  other  expenses;  the  balances  of  profit  and  loss; 
and  a  complete  exhibit  of  the  financial  operations  of  the  carrier 
each  year,  including  an  annual  balance  sheet.  Such  reports  shall 
also  contain  such  information  in  relation  to  rates  or  regulations 
concerning  fares  or  freights,  or  agreements,  arrangements,  or 
contracts  affecting  the  same  as  the  Commission  may  require; 
and  the  Commission  may,  in  its  discretion,  for  the  purpose  of 
enabling  it  the  better  to  carry  out  the  purposes  of  this  Act,  pre- 
scribe a  period  of  time  within  which  all  common  carriers  subject 
to  the  provisions  of  this  Act  shall  have,  as  near  as  may  be,  a 
uniform  system  of  accounts,  and  the  manner  in  which  such 
accounts  shall  be  kept. 

Said  detailed  reports  shall  contain  all  the  required  statistics 
for  the  period  of  twelve  months  ending  on  the  thirtieth  day  of 
June  in  each  year,  and  shall  be  made  out  under  oath  and  filed 
with  the  Commission,  at  its  office  in  Washington,  on  or  before 
the  thirtieth  day  of  September  then  next  following,  unless  addi- 
tional time  be  granted  in  any  case  by  the  Commission;  and  if  any 
carrier,  person,  or  corporation  subject  to  the  provisions  of  this 
act  shall  fail  to  make  and  file  said  annual  reports  within  the  time 


APPENDIX  235 

above  specified,  or  witliin  the  time  extended  by  the  Commission 
for  making  and  fiUrig  the  same,  or  shall  fail  to  make  specific 
answer  to  any  question  authorized  by  the  provisions  of  this  sec- 
tion within  thirty  days  from  the  time  it  is  lawfully  required  so  to 
do,  such  parties  shall  forfeit  to  the  United  States  the  sum  of 
one  hundred  dollars  for  each  and  every  day  it  shall  continue  to 
be  in  default  with  respect  thereto.  The  Commission  shall  also 
have  authority  to  recjuire  said  carriers  to  file  monthly  reports  of 
earnings  and  expenses  or  special  reports  within  a  specified  period, 
and  if  any  such  carrier  shall  fail  to  file  such  reports  within  the 
time  fixed  by  the  Commission  it  shall  be  subject  to  the  forfeitures 
last  above  provided. 

Said  forfeitures  shall  be  recovered  in  the  manner  provided 
for  the  recovery  of  forfeitures  under  the  provisions  of  this  Act. 

The  oath  required  by  this  section  may  be  taken  before  any 
person  authorized  to  administer  an  oath  by  the  laws  of  the  State 
in  which  the  same  is  taken. 

The  Commission  may,  in  its  discretion,  prescribe  the  forms 
of  any  and  all  accounts,  records,  and  memoranda  to  be  kept  by 
carriers  subject  to  the  pro\isions  of  this  Act,  including  the 
accounts,  records,  and  memoranda  of  the  movement  of  traflBc 
as  well  as  the  receipts  and  expenditures  of  moneys.  The  Com- 
mission shall  at  all  times  have  access  to  all  accounts,  records,  and 
memoranda  kept  by  carriers  subject  to  this  Act,  and  it  shall  be 
unlawful  for  such  carriers  to  keep  any  other  accounts,  records, 
or  memoranda  than  those  prescribed  or  approved  by  the  Com- 
mission, and  it  may  em{)loy  special  agents  or  examiners,  who 
shall  have  authority  under  the  order  of  the  Commission  to  inspect 
and  examine  any  and  all  accounts,  records,  and  memoranda  kept 
by  such  carriers.  This  pronsion  shall  apply  to  receivers  of  car- 
riers and  operating  trustees. 

In  case  of  failure  or  refusal  on  the  part  of  any  such  carrier, 
receiver,  or  trustee  to  keep  such  accoimts,  records,  and  memo- 
randa on  the  books  and  in  the  manner  prescribed  by  the  Com- 
mission, or  to  submit  such  accounts,  records,  and  memoranda 
as  are  kept  to  the  inspection  of  the  Commission  or  any  of  its 
authorized  agents  or  examiners,  such  carrier,  receiver,  or  trustee 
shall  forfeit  to  the  United  States  the  sum  of  five  hundred  dollars 
for  each  such  offense  and  for  each  and  every  day  of  the  continu- 
ance of  such  offense,  such  forfeitures  to  be  recoverable  in  the 
same  manner  as  other  forfeitures  provided  for  in  this  Act. 


236  APPENDIX 

Any  person  who  shall  willfully  make  any  false  entry  in  the 
accounts  of  any  book  of  accounts  or  in  any  record  or  memoranda 
kept  by  a  carrier,  or  who  shall  willfully  destroy,  mutilate,  alter, 
or  by  any  other  means  or  device  falsify  the  record  of  any  such 
account,  record,  or  memoranda,  or  who  shall  willfully  neglect 
or  fail  to  make  full,  true,  and  correct  entries  in  such  accounts, 
records,  or  memoranda  of  all  facts  and  transactions  appertaining 
to  the  carrier's  business,  or  shall  keep  any  other  accounts,  records, 
or  memoranda  than  those  prescribed  or  approved  by  the  Com- 
mission, shall  be  deemed  guilty  of  a  misdemeanor  and  shall  be 
subject,  upon  conviction  in  any  court  of  the  United  States  of 
competent  jurisdiction,  to  a  fine  of  not  less  than  one  thousand 
dollars  nor  more  than  five  thousand  dollars,  or  imprisonment  for 
a  term  not  less  than  one  year  nor  more  than  three  years,  or  both 
such  fine  and  imprisonment. 

Any  examiner  who  divulges  any  fact  or  information  which 
may  come  to  his  knowledge  during  the  course  of  such  examina- 
tion, except  in  so  far  as  he  may  be  directed  by  the  Commission 
or  by  a  court  or  judge  thereof,  shall  be  subject,  upon  comaction 
in  any  court  of  the  United  States  of  competent  jurisdiction,  to  a 
fine  of  not  more  than  five  thousand  dollars  or  imprisonment  for 
a  term  not  exceeding  two  years,  or  both. 

That  the  circuit  and  district  courts  of  the  United  States  shall 
have  jurisdiction,  upon  the  application  of  the  Attorney-General 
of  the  United  States  at  the  request  of  the  Commission,  alleging 
a  failure  to  comply  with  or  a  \aolation  of  any  of  the  provisions  of 
said  Act  to  regulate  commerce  or  of  any  Act  supplementary 
thereto  or  amendatory  thereof  by  any  common  carrier,  to  issue 
a  writ  or  writs  of  mandamus  commanding  such  common  carrier 
to  comply  with  the  pro\asions  of  said  Acts,  or  any  of  them. 

And  to  carry  out  and  give  effect  to  the  provisions  of  said  Acts, 
or  any  of  them,  the  Commission  is  hereby  authorized  to  employ 
special  agents  or  examiners  who  shall  have  power  to  administer 
oaths,  examine  witnesses,  and  receive  evidence. 

That  any  common  carrier,  railroad,  or  transportation  company 
receiving  property  for  transportation  from  a  point  in  one  State 
to  a  point  in  another  State  shall  issue  a  receipt  or  bill  of  lading 
therefor  and  shall  be  liable  to  the  lawful  holder  thereof  for  any 
loss,  damage,  or  injury  to  such  property  caused  by  it  or  by  any 
common  carrier,  railroad,  or  transportation  company  to  which 
such  property  may  be  delivered  or  over  whose  line  or  lines  such 


APPENDIX  287 

property  may  pass,  and  no  contract,  receipt,  rule,  or  regulation 
shall  exempt  such  common  carrier,  railroad,  or  transportation 
company  from  the  Hability  hereby  imposed :  Provided,  That  no- 
thing in  this  section  shall  deprive  any  holder  of  such  receipt  or 
bill  of  lading  of  any  remedy  or  right  of  action  which  he  has  under 
existing  law. 

That  the  common  carrier,  railroad,  or  transportation  company 
issuing  such  receipt  or  bill  of  lading  shall  be  entitled  to  recover 
from  the  common  carrier,  railroad,  or  transportation  company 
on  whose  line  the  loss,  damage,  or  injury  shall  have  been  sus- 
tained the  amount  of  such  loss,  damage,  or  injury  as  it  may  be 
required  to  pay  to  the  owners  of  such  property,  as  may  be 
evidenced  by  any  receipt,  judgment,  or  transcript  thereof. 

Sec.  21  (As  amended  March  2,  1889).  That  the  Commission 
shall,  on  or  before  the  first  day  of  December  in  each  year,  make 
a  report,  which  shall  be  transmitted  to  Congress,  and  copies  of 
which  shall  be  distributed  as  are  the  other  reports  transmitted 
to  Congress.  This  report  shall  contain  such  information  and 
data  collected  by  the  Commission  as  may  be  considered  of  value 
in  the  determination  of  questions  connected  with  the  regulation 
of  commerce,  together  with  such  recommendations  as  to  addi- 
tional legislation  relating  thereto  as  the  Commission  may  deem 
necessary;  and  the  names  and  compensation  of  the  persons 
employed  by  said  Commission. 

Sec.  22  (As  amended  March  2,  1889,  and  February  8,  1895). 
That  nothing  in  this  Act  shall  prevent  the  carriage,  storage,  or 
handling  of  property  free  or  at  reduced  rates  for  the  United 
States,  State,  or  municipal  governments,  or  for  charitable  pur- 
poses, or  to  or  from  fairs  and  expositions  for  exhibition  thereat, 
or  the  free  carriage  of  destitute  and  homeless  persons  transported 
by  charitable  societies,  and  the  necessary  agents  employed  in 
such  transportation,  or  the  issuance  of  mileage,  excursion,  or 
commutation  passenger  tickets;  nothing  in  this  Act  shall  be  con- 
strued to  prohibit  any  common  carrier  from  giving  reduced  rates 
to  ministers  of  religion,  or  to  municipal  governments  for  the 
transportation  of  indigent  persons,  or  to  inmates  of  the  National 
Homes  or  State  Homes  for  Disabled  Volunteer  Soldiers,  and  of 
Soldiers'  and  Sailors'  Orphan  Homes,  including  those  about  to 
enter  and  those  returning  home  after  discharge,  under  arrange- 
ments with  the  boards  of  managers  of  said  homes;  nothing  in 
this  Act  shall  be  construed  to  prevent  railroads  from  giving  free 


238 


APPENDIX 


carriage  to  their  own  officers  and  employees,  or  to  prevent  the 
principal  officers  of  any  railroad  company  or  companies  from 
exchanging  passes  or  tickets  with  other  railroad  companies  for 
their  officers  and  employees;  and  nothing  in  this  Act  contained 
shall  in  any  way  abridge  or  alter  the  remedies  now  existing  at 
common  law  or  by  statute,  but  the  provisions  of  this  Act  are  in 
addition  to  such  remedies :  Provided,  That  no  pending  Htigation 
shall  in  any  way  be  affected  by  this  act:  Provided  further.  That 
nothing  in  this  act  shall  prevent  the  issuance  of  joint  inter- 
changeable five-thousand-mile  tickets,  with  special  privileges  as 
to  the  amount  of  free  baggage  that  may  be  carried  under  mileage 
tickets  of  one  thousand  or  more  miles.  But  before  any  common 
carrier,  subject  to  the  provisions  of  this  Act,  shall  issue  any  such 
joint  interchangeable  mileage  tickets  with  special  privileges,  as 
aforesaid,  it  shall  file  with  the  Interstate  Commerce  Commission 
copies  of  the  joint  tariffs  of  rates,  fares,  or  charges  on  which  such 
joint  interchangeable  mileage  tickets  are  to  be  based,  together 
with  specifications  of  the  amount  of  free  baggage  permitted  to 
be  carried  under  such  tickets,  in  the  same  manner  as  common 
carriers  are  required  to  do  with  regard  to  other  joint  rates  by 
section  six  of  this  Act;  and  all  the  provisions  of  said  section 
six  relating  to  joint  rates,  fares,  and  charges  shall  be  observed 
by  said  common  carriers  and  enforced  by  the  Interstate  Com- 
merce Commission  as  fully  with  regard  to  such  joint  inter- 
changeable mileage  tickets  as  with  regard  to  other  joint  rates, 
fares,  and  charges  referred  to  in  said  section  six.  It  shall  be 
unlawful  for  any  common  carrier  that  has  issued  or  authorized 
to  be  issued  any  such  joint  interchangeable  mileage  tickets  to 
demand,  collect,  or  receive  from  any  person  or  persons  a  greater 
or  less  compensation  for  transportation  of  persons  or  baggage 
under  such  joint  interchangeable  mileage  tickets  than  that 
required  by  the  rate,  fare,  or  charge  specified  in  the  copies  of 
the  joint  tariff  of  rates,  fares,  or  charges  filed  with  the  Commis- 
sion in  force  at  the  time.  The  provisions  of  section  ten  of  this 
Act  shall  apply  to  any  violation  of  the  reqviirements  of  this 
proviso. 

NEW  SECTION  (Added  March  2,  1889)  [Sec.  23].  That 
the  circuit  and  district  courts  of  the  United  States  shall  have 
jurisdiction  upon  the  relation  of  any  person  or  persons,  firm, 
or  corporation,  alleging  such  violation  by  a  common  carrier,  of 
any  of  the  provisions  of  the  Act  to  which  this  is  a  supplement  and 


APPENDIX  239 

all  Acts  amendatory  thereof,  as  prevents  the  relator  from  ha\'ing 
interstate  traffic  moved  by  said  common  carrier  at  the  same  rates 
as  are  charged,  or  upon  terms  or  conditions  as  favorable  as  those 
given  by  said  common  carrier  for  like  traffic  under  similar  condi- 
tions to  any  other  shipper,  to  issue  a  writ  or  WTits  of  mandamus 
against  said  common  carrier,  commanding  such  common  carrier 
to  move  and  transport  the  traffic,  or  to  furnish  cars  or  other 
facilities  for  transportation  for  the  party  applnng  for  the  writ: 
Provided,  That  if  any  question  of  fact  as  to  the  proper  compensa- 
tion to  the  common  carrier  for  the  ser\-ice  to  be  enforced  by  the 
writ  is  raised  by  the  pleadings,  the  writ  of  peremptory  man- 
damus may  issue,  notwithstanding  such  question  of  fact  is  undev 
termined,  upon  such  terms  as  to  security,  payment  of  money  into 
the  court,  or  otherwise,  as  the  court  may  think  proper,  pending 
the  determination  of  the  question  of  fact:  Provided,  That  the 
remedy  hereby  given  by  writ  of  mandamus  shall  be  cumulative, 
and  shall  not  be  held  to  exclude  or  interfere  \nth  other  remedies 
provided  by  this  Act  or  the  Act  to  which  it  is  a  supplement. 

Sec.  2i  (Added  June  29,  1906).  That  the  Interstate  Com^ 
merce  Commission  is  hereby  enlarged  so  as  to  consist  of  seven 
members  with  terms  of  seven  years,  and  each  shall  receive  ten 
thousand  dollars  compensation  annually.  The  qualifications  of 
the  Commissioners  and  the  manner  of  the  payment  of  their 
salaries  shall  be  as  already  provided  by  law.  Such  enlargement 
of  the  Commission  shall  be  accompHshcd  through  appointment 
by  the  President,  by  and  with  the  advice  and  consent  of  the 
Senate,  of  two  additional  Interstate  Commerce  Commissioners, 
one  for  a  term  expiring  December  thirty-first,  nineteen  hundred 
and  eleven,  one  for  a  term  expiring  December  thirty-first,  nine- 
teen hundred  and  twelve.  The  terms  of  the  present  Commis- 
sioners, or  of  any  successor  appointed  to  fill  a  vacancy  caused 
by  the  death  or  resignation  of  any  of  the  present  Commissioners, 
shall  expire  as  heretofore  pro\-ided  by  law.  Their  successors  and 
the  successors  of  the  additional  Commissioners  herein  proWded 
for  shall  be  appointed  for  the  full  term  of  se\en  years,  except  that 
any  person  appointe<l  to  fill  a  vacancy  shall  be  appointed  only 
for  the  unexpired  term  of  the  Commissioner  whom  he  shall  suc- 
ceed. Not  more  than  four  Commissioners  shall  be  appointed 
from  the  same  political  party. 

(Additional  provisions  in  Act  of  June  29,  1906.)  (Sec.  9.) 
That  all  existing  laws  relating  to  the  attendance  of  witnesses 


240  APPENDIX 

and  the  production  of  evidence  and  the  compelling  of  testimony 
under  the  Act  to  regulate  commerce  and  all  Acts  amendatory 
thereof  shall  apply  to  any  and  all  proceedings  and  hearings 
under  this  Act. 

(Sec.  10.)  That  all  laws  and  parts  of  laws  in  conflict  with  the 
provisions  of  this  Act  are  hereby  repealed;  but  the  amendments 
herein  provided  for  shall  not  affect  causes  now  pending  in  courts 
of  the  United  States,  but  such  causes  shall  be  prosecuted  to  a 
conclusion  in  the  manner  heretofore  provided  by  law. 

(Sec.  11.)  That  this  Act  shall  take  effect  and  be  in  force  from 
and  after  its  passage. 

Joint  resolution  of  June  30,  1906,  provides:  "That  the  act 
entitled  'An  act  to  amend  an  act  entitled  "An  act  to  regulate 
commerce,"  approved  February  4,  1887,  and  all  acts  amendatory 
thereof,  and  to  enlarge  the  powers  of  the  Interstate  Commerce 
Commission,'  shall  take  effect  and  be  in  force  sixty  days  after  its 
approval  by  the  President  of  the  United  States." 

PubHc  No.  41,  approved  February  4,  1887,  as  amended  by 
Public  No.  125,  approved  March  2,  1889,  and  Public  No.  72, 
approved  February  10,  1891.  Public  No.  38,  approved  Febru- 
ary 8,  1895.  Public  No.  337,  approved  June  29,  1906.  Public 
Res.,  No.  47,  approved  June  30,  1906. 


CAMBRIDGK  .  MASSACHUSETTS 
U   .   S   .    A 


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